LONDON: Sterling steadied on Friday but was set for its best week in five months against the euro as interest rate hike expectations offset worries about a fuel crisis and labour shortages.
In September, sterling hit a two-month low versus the euro and erased all of its strong gains versus the dollar for 2021 as Britain's supply chains were strained by shortages of workers.
But rising expectations that the Bank of England may act sooner to tackle inflation have supported sterling this week.
Versus the euro, it flattened at 84.82 pence by 1440 GMT, on track for its strongest week versus the single currency since mid May.
Sterling edged 0.2% higher to $1.3644 versus the dollar, after it briefly jumped to a 10-day high of $1.3661 as data showed US job growth slowed sharply in September. It was set for weekly gains versus the greenback, after four consecutive weeks of losses.
The central theme in markets was how central bankers react to expectations of higher inflation, ING told clients in a note.
"In the UK, markets are clearly taking the view that the BoE will be forced to act much sooner than hinted at by policymakers," ING said.
Amid expectations the Bank of England is approaching its first post-pandemic interest rate hike, British two-year government bond yields hit their highest since February 2020 on Friday.
Bank of England Chief Economist Huw Pill reiterated this week that the size and duration of the jump in inflation is proving greater than expected.
In its September policy statement, the BoE nudged up its forecast for inflation at the end of the year to over 4%, more than twice its target rate.
A survey showed that employers in Britain increased pay for new staff by the most since at least the 1990s.
Britain's energy regulator Ofgem said it has no plans to increase the consumer price cap before April but is likely to introduce a significant rise after then.
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