British Pound Stronger Against the Euro on Monday Amid Decreasing Omicron Fears

The British pound (GBP) touched its highest point against the euro (EUR) since February 2020 amid expectations of an interest rate hike and easing worries over the impact of the Omicron COVID-19 variant on the economy.

Analysts opine that Sterling has recorded significant gains since mid-December, thanks to the refusal of the UK government to impose fresh lockdown restrictions, which gave investors the much-needed sentiment boost.

Britain has opted to focus on the distribution of booster vaccination shots, which has reached over 60% of the population, rather than mandating a return to lockdown measures.

Meanwhile, investors have become more expectant that the Bank of England could raise interest rates as early as February, following an unexpected rate hike last month. Commenting on this possibility, an analyst at ING cited that the overnight indexed swap (OIS) market has priced an 80% chance of a 25 base points hike, adding that:

“We are looking for a decent November UK GDP release tomorrow of 0.4% month over month, which should keep expectations alive of a further Bank of England rate hike on February 3.”

British Pound Trades Fairly Against Greenback on Monday

In other news, a preliminary estimate of the UK’s gross domestic product for November is set for release on Tuesday. Also, GBP currently trades down by -0.11% against the greenback but holds close to its highest point since November 2021 at 1.3599.

Meanwhile, the EUR/GBP pair traded down by -0.21% in the London session today, bottoming at 0.8332 last week, its lowest point since February 2020. According to FX analyst at Argentex, Joe Tuckey, Sterling entered 2022 “with a tailwind of cautious optimism; the market will be looking closely at Omicron data, and any immediate indication of Liz Truss’s focus areas, as an indication of the tone taken by the Bank of England in Q1.”