Pound Sterling Falls As UK Reintroduces Restriction

Updated:

There is a lot of volatility in the markets today, especially in Pound Sterling. Due to the spread of Omicron, the Pound fell dramatically on rumors that the UK government might activate a plan B and implement some limitations as soon as Wednesday. Nonetheless, emotions improved.

Pfizer announced that preliminary laboratory data revealed its vaccination may neutralize Omicron after three doses. For the time being, the Sterling remains the weakest currency, while the Euro and the Australian dollar are the strongest.

The potential of reimposing Covid-19 limits is weighing on the pound, according to economists, clouding the outlook for the UK economy and delaying the Bank of England’s monetary tightening plans. According to the Financial Times, UK Prime Minister Boris Johnson is about to announce “Plan B” Covid-19 restrictions, which include the requirement of vaccine passports for access to large venues and a recommendation to work from home, to slow the spread of the Omicron Covid-19 variant.

Further tightening of restrictions, such as requiring individuals to work from home, will impair economic prospects… (and) implies the Bank of England is much more likely to wait until February to raise rates.”

Members of the Bank of England have voiced a higher level of concern about the possible impact of the Omicron variety on the economy than policymakers at the Fed and ECB. Last week, one of the bank’s most hawkish members, Michael Saunders, stated that to wait for additional evidence on the new variation, a more patient approach to rate-setting would be necessary.

Pound Sterling Remains Fragile, GBP/USD May Continue Falling Till the End of the Year

Pound Sterling sank to its worst level of the year versus the US dollar, moving to the south for the first time since mid-November. Inflationary pressures in the United Kingdom are undermining the good impact of Bank of England rate hike forecasts. The UK OIS curve’s front end currently appears to be competitively priced to us. However, rising inflation in Q1 22 should undermine the pound’s real rate support.

GBP’s capacity to rebound in the short term will be limited by slowing GDP and persistent concerns over the EU-UK post-Brexit trading agreements. Higher levels of foreign acquisition and investment in UK assets in the future should provide an undercurrent of support for the currency.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.