The pound found support on Tuesday due to a weaker US dollar and improving market sentiment. Fears about the new Omicron Covid variant began to ease and helped to improve the overall market sentiment.
With no negative Brexit-related news, and rising expectations for a rate hike by the Bank of England in December, the pound will remain supported. Apart from this, limited demand for the US dollar will also provide some impetus to the British currency.
Omicron fears ease
News that the Omicron symptoms are mild have helped ease fears regarding the economic effects from the new variant and boosted investor confidence. Equity markets were buoyed but the US dollar’s status as a safe haven was undermined. Expectations that the Fed will proceed to tighten policy and raise interest rates sooner than later has helped to limit losses for the dollar.
Advanced vaccine booster programme
The UK’s advanced vaccine booster programme has also injected markets with hope as analysts believe that the UK’s programme might mean that harsh restrictions might not be necessary. If the UK succeeds with its booster programme and protects the majority of the population, then this could benefit the pound.
As mentioned earlier, markets and the pound will become more positive once more news is announced about the efficiency of vaccines against the Omicron variant. Pfizer is expected to offer some research findings before the weekend.
More particularly, for the pound, what matters is also the government’s response to the number of cases which is currently rising. Markets will watch closely any news from the Prime Minister and how he will deal with the incoming data about the virus and vaccines. There is still much uncertainty about how strong and dangerous Omicron is and how it may be able to infect people despite vaccine protection.
Since the new variant was first detected, global markets have fallen, and the pound posted losses against the dollar and euro as sentiment deteriorated.
Pound at the mercy of external factors
The pound has been at the mercy of global market sentiment and fears about the Omicron variant. Once things improve and it is clear that the variant is not as dangerous, then the pound will gain more support.
The Bank of England is expected to consider raising interest rates on December 16, but the Bank will also take into account the Omicron variant and its effect on the economy.
Prime Minister Boris Johnson said on Monday that over 20 million people have already got their booster jab. Health professionals are worried that the vaccine could escape the protection from vaccines. Omicron now is spreading more quickly than the Delta variant with more cases in London and the South East.
There is a general view that Omicron won’t be a big problem as its symptoms are mild, but experts remain cautious as they fear another wave of hospitalisations. Until more details are made clear about the transmissibility of the Omicron variant, the severity of disease and the effectiveness of vaccines, markets will grapple with uncertainty.
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