On Wednesday, the British pound hit a fresh 11 month low against the dollar, while expectations for a rate hike supported the dollar, while it was slightly higher against the euro.
The investor's focus was on whether or not the Bank of England will increase interest rates at its December meeting, and wondered about the impact of the new wave of COVID 19 cases across the continent.
The pound fell 0.4% versus the dollar at 0833 GMT, after hitting its lowest level since December 22, 2020, at $1.3324, as the re-election of Federal Reserve Chair Jerome Powell strengthened market expectations of a U.S. rate next year.
The pound is less vulnerable than the euro to the Pandemic, although markets might be reluctant to speculate that Britain will dodge another COVID 19 severe wave, according to ING analysts.
But a decisive move below 84 pence against the euro may signal investors are beginning to price in different contagion growth paths for the UK and the eurozone, something similar to what we saw at the beginning of the 1Q21 vaccination programme, according to a research note.
The pound was up 0.1% at 83.97 pence against the euro, after hitting its highest since February 2020 on Monday at 83.8 pence.
The pound was up to support earlier this month from rate hike talk, but investors are increasingly wary of the outlook for UK yields.
Andrew Bailey, the Bank of England BoE Governor, raised further uncertainty over the weekend on the possibility of a rate hike in December by saying that the inflation debate in Britain is finely balanced, according to analysts.
On Wednesday, Bank of England policymaker Silvana Tenreyro said she was thinking more in the medium term about the question of when the central bank should raise interest rates from their pandemic emergency low.
Analysts at Nomura expect the BoE to raise rates modestly at its December meeting 15 bp, as they expect fewer pandemic restrictions than those in some European countries and a brighter near-term outlook for activity.
British industrial orders went up this month with a growth measure hitting its highest since 1977, and price expectations among manufacturers climbed to a 44 year high, according to a survey released on Wednesday.