Currency Note

Pound strong due to positive market sentiment

By Alex Bennett December 29th, 2021

The pound is trading near a 2021 high against the euro and is strong against the dollar this morning, mainly due to upbeat market sentiment.

The FTSE 100 has hit a pandemic high this morning on hopes that the Omicron variant may not be as severe as initially feared, despite cases hitting a record high yesterday. Following studies released last week, the government’s life sciences adviser said that Omicron “appears to be less severe and many people spend a relatively short time in hospital”.

Sterling has strengthened following this and is likely to continue to react to news surrounding the pandemic for the rest of this week and into the new year.

It’s a fairly quiet week for economic data releases, although in the US we can expect to see home sales figures today and jobless claims data tomorrow.

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GBP: Pound reactive to pandemic rhetoric

The pound is fairly strong this morning against both the euro and the dollar, benefitting from the Prime Minister’s announcement that there will be no new Covid restrictions in England before the new year.

Sterling is also building on gains made after the Bank of England rose the interest rate to 0.25%, as well as further suggestions the Omicron variant isn’t as severe as the Delta and poses less risk of hospitalisation.

It’s a quiet week for UK data, with data on house prices due to be released tomorrow.

GBP/USD chart over past year

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EUR: Euro weaker despite Omicron news

The euro is weaker against both the pound and the dollar this morning, mainly due to sterling and greenback strength.

The single currency had recently benefitted from a softening of European gas prices, as well as news that the Omicron variant may not be as severe as initially feared. However, it is weaker against the dollar this morning.

There are very few data releases for Europe this week. On Monday, PMI figures for both Germany and the Eurozone are set to kick-off the new year.

USD: Dollar stronger ahead of data releases

The dollar is strengthening against a basket of currencies this morning, including the euro.

There is a series of data releases for the US today, including pending home sales, which are expected to show that sales increased by 0.5% month-on-month in November.

Tomorrow, the usual jobless claims figures will be released, and are expected to show that claims increased by 1868K in the week ending December 18.

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