LONDON (Reuters) - Sterling held above an 11-month low on Monday as calm returned to global markets after the discovery of the Omicron coronavirus variant on Friday prompted investors to dump the British currency.
The pound stabilised at $1.3324 in early London trading versus the U.S. dollar after plunging to a December 2020 low of $1.3278 on Friday. Against the euro, it strengthened 0.3% at 84.55 pence.
South Africa discovered the Omicron variant last week, prompting countries to rush to tighten border controls and sending markets into a tailspin on Friday.
But on Monday investors were engaged in "buying the dip" trades, as markets take a more balanced view of risks attached to what the WHO called a "variant of concern". Still, broader sentiment was a bit more cautious towards the pound.
"In terms of the outlook, for the UK it’s possibly a bigger risk as the market’s long-held assumption that the UK is unlikely to witness another lockdown," said Jordan Rochester, a strategist at Nomura.
Investors worry that more lockdowns would water down expectations of rate hikes, a key factor that has held up the pound in recent weeks.
Markets are pricing in around 8 bps of an increase in interest rates by the Bank of England on Dec. 16. That has fallen from more than 12 bps at the start of last week.
(Reporting by Saikat Chatterjee; Editing by Ed Osmond)