Currency Note

Pound faces week of uncertainty due to Omicron

By alexbennett December 20th, 2021

The pound strengthened towards the end of last week due to the Bank of England’s monetary policy meeting, when it was unexpectedly announced that the interest rates would be raised to 0.25%.

Despite this, sterling faces uncertainty this week, as it could react to ongoing talk of an increase in restrictions to combat the Omicron variant. The pound has already weakened slightly against the euro this morning.

Reports this morning reveal that civil servants have prepared three options of restriction measures for the government to consider. Deputy Prime Minister, Dominic Raab, said that the government is waiting for ‘real-time data’ before making any decisions.

The dollar is benefitting from its status as a ‘safe-haven’ currency this morning and is also strong due to ‘hawkish’ remarks from the Federal Reserve last week.

Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Trader on 020 7898 0500 to get started.

GBP: Omicron fears could impact pound

Sterling strengthened following the Bank of England’s latest monetary policy meeting last week, when interest rates were raised to 0.25%. The pound is trading around the same levels against the euro this morning but has weakened slightly against the dollar.

This week, sterling is likely to continue to react to news surrounding the COVID-19 Omicron variant and what rising cases could mean for the UK economy. Although no new restrictions have been brought in for socialising, pubs and restaurants have said that business has been impacted by personal decisions to stay at home.

Final GDP figures for the UK and consumer confidence data will be released this week.

GBP/USD chart over past year

From To

 

EUR: Consumer confidence data this week

The euro is trying to make a recovery against the dollar this morning amid rising Omicron cases across Europe.

It’s a light week for European economic data overall, but consumer confidence figures for both Germany and the eurozone will be released tomorrow. Both are expected to show a drop due to an increase of restrictions across the continent due to rising cases.

USD: Dollar stronger due to ‘safe-haven’ demand

The dollar is stronger against a basket of currencies this morning, helped by the Federal Reserve’s rhetoric at its meeting last week, as well as rising Omicron cases across Europe.

Last week, the Federal Reserve confirmed that it would accelerate the tapering of its bond-buying programme with a view to raise interest rates next year. This has boosted the greenback, as well as ‘safe-haven’ demand due to rising COVID-19 cases and the impact on economies across Europe.

This week, there will be a series of data releases for the US, including personal spending and durable goods orders.

For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 7898 0500 or your Private Client trader on 020 7898 0541.