The pound has fallen against the euro as the market continued to avoid risk currencies in favour of safe-havens. On the other hand, the pound has gained support against the US dollar and reversed some of its losses from Friday following positive Brexit-related news. The UK has granted new licences for French ships to be able to work in British waters which was seen as a sign of progress and offered a moderate rise to the British pound. Apart from this, the broader market risk sentiment will influence demand for the dollar and set the tone for the pound.
Bank of England
A potential risk to the pound is the possibility of the Bank of England (BoE) postponing an interest rate hike on the 16th of December. BoE Monetary Policy Committee member Michael Saunders noted that the new Covid-19 variant has clouded the economic outlook and created uncertainty. Saunders clarified that it is beneficial to wait for more information before tightening monetary policy.
Sterling fell against the single currency due to uncertainty regarding the new variant. The spread of the virus in South Africa suggests that this variant has higher transmissibility and affects immunity more significantly than other variants such as the Delta one. South Africa has reported an increase of 11,125 new Covid cases a day, on Sunday, which are less compared to previous days.
The Omicron variant has been found in more than 16 US states, and more cases are expected to be detected, according to Dr Rochelle Walensky of the US Centres for Disease Control and Prevention. Many of the cases were among fully vaccinated individuals who had mild symptoms, although it was not clear whether these individuals have had the booster. The Delta variant accounts for 99.9% of new Covid cases in the United States, Walensky added.
The emergence of such a variant threatens to disrupt efforts to end the pandemic. The World Health Organisation said that the Omicron variant will possibly spread internationally and poses a very high risk of infection that could have a very negative impact on certain places.
The coronavirus pandemic is not over and the next one could be even worse, the creator of the Oxford/AstraZeneca vaccine noted. Professor Dame Sarah Gilbert warned that while “this pandemic is not done with us”, the next one could be even more lethal.
With considerable uncertainty and lack of more information on how fast Omicron can spread globally, markets will remain volatile.
Pound: week ahead
The week ahead could be significant depending on how the market reacts to new details about the threat of the virus. October’s UK GDP data due out on Friday morning will also provide a clearer view of the UK’s economic recovery in the final quarter. Friday’s GDP data is expected to show 0.3% pace of growth for October, an expansion driven by the services sector, which is now threatened by the virus.
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