UK's pound recovers from sharp selloff as interest rates rise

UK's pound recovers from sharp selloff as interest rates rise

LONDON, Oct 5 Reuters - The Sterling exchange rate rose against the Euro on Tuesday, recovering from a sharp selloff last week as traders turned their attention to the prospect of interest rate increases in Britain.

Rising inflation expectations hit risk sentiment last week and saw bond yields climb higher, pushing risk-sensitive sterling to a two-month low versus the dollar and to its lowest level in Dollar against the Dollar since December 2020.

But by 0825 GMT sterling was 0.2% higher against the Euro at 85.22 pence, after jumping back to its highest level since mid-September.

Sterling's recovery seems surprising said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.

While the European Central Bank has no plans to raise rates soon, the prospect of imminent rate hikes, signalled by the Bank of England, is lending support to the pound again, Leuchtmann said in a note to clients.

The ECB's announcement of the trade plan was supported by sterling (Shanghai).

The pound has gained nearly 5% in their this year euro against the pound, but caution should prevail, says Leuchtmann.

He said it was unclear whether the BoE might abandon the supply problem and cave in the face of more rapid rate hikes.

This Supply Chain - chain for everything from pork, petrol and milk to medicine and milk has been strained by shortages of labour since Brexit and the start of the COVID - 19 Pandemic.

Analysts flagged that the pound looked not to be reacted to renewed Brexit risk after Britain told the European Union on Monday it would trigger safeguard measures in their divorce deal if the bloc fails to agree to changes to smooth trade with Northern Ireland.

European states have promised to apply within days to the UK to take part in the negotiations for the Brexit of the United Kingdom.

Versus the dollar, sterling was 0.1% higher at $1.3620, not far from the week's high, touched the previous day.