The pound is lower against both the euro and the US dollar following a stronger US dollar, as well as geopolitical and Brexit concerns. The main highlight for the week in terms of UK data will be the important inflation report this Wednesday which could support a Bank of England rate hike. With developments around Ukraine and January’s inflation data on the horizon, the pound could potentially be at risk. On Monday, rising fears of an imminent Russian attack on Ukraine triggered a global share sell-off and pushed oil prices higher.

Brexit

UK Foreign Secretary Lizz Truss has been criticised for granting too much ground to the EU in the ongoing negotiations over the Northern Ireland Protocol. In the latest round of talks, the Foreign Secretary is reported to have hinted that Britain would accept customs controls on goods intended for sale only in Northern Ireland. According to the Financial Times, the verbal offer was “so sensitive” it has not yet been put to paper. Truss’s latest concession about accepting some checks on trade within the UK contradicts the Government’s former position.

Pro-Brexit businessman and former MEP Ben Habib said that Truss’s suggestion represented a “complete collapse” in the Government’s position. Habib said: “If true, Ms Truss’s latest concession to the EU, to accept limited customs checks for goods from GB destined for use in Northern Ireland is a disaster.” He added: “It would signify a complete collapse in the British position and a preparedness to set in stone customs checks across the Irish Sea. Customs checks which the Government itself decried in its Command Paper last July.” The news, concerns over the Northern Ireland (NI) border checks and the lack of progress in the talks could weigh on GBP/USD prices.

PM Boris Johnson

Scotland Yard are in the process of contacting more than 50 people who have been present in the lockdown events in Downing Street. Boris Johnson has been contacted by the Metropolitan Police as part of the probe into lockdown parties held in Downing Street and across Whitehall. The formal questionnaire is understood to have been received after 9.30pm on Friday night. This could also add to political fears and weigh on GBP/USD prices.

Covid-19 and “Deltacron”

Another potential risk for the pound is news that health officials in the United Kingdom have begun monitoring a hybrid strain of the delta and omicron coronavirus known as "Deltacron" last week. While initially the mutation was dismissed, officials are now considering it as a real threat.  

Russia Ukraine tensions

Tensions between the two countries are high, with Washington warning that Russia could attack Ukraine at any time. Moscow has amassed more than 100,000 troops near Ukraine’s borders, while a senior Russian military official said on Monday that Russia was ready to open fire on foreign ships and submarines that enter its territorial waters.

BoE rate hike

The Bank of England will raise interest rates faster than previously expected to control surging inflation, according to economists polled by Reuters.

Sterling could rise on Wednesday when we get the release of inflation figures for January. Market participants expect a surprise on the upside and a more aggressive interest rate response from the Bank of England (BoE) over the coming months. CPI inflation is forecast at 5.4%, but investors have said a pleasant surprise on the upside could be a possibility.

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