The pound rose on Wednesday following Boris Johnson’s announcement on Tuesday night that the government won’t be introducing new Covid restrictions before Christmas. Sterling was up against the US dollar and the euro. The prospect of new restrictions to contain Omicron, and the drop in trading at hospitality firms and retailers, had pushed the pound lower over the recent weeks.

No new restrictions before Christmas

Boris Johnson has confirmed that Christmas will go ahead without any restrictions on socialising, but this has sparked criticism that this decision will only lead to stricter measures later. The Prime Minister said that he recognised that families across England required certainty to spend Christmas with their families, but he explained that restrictions could still be imposed after 25 December because of the rapid spread of the Omicron variant.

The Prime Minister’s Christmas decision was different than the ones by the Scottish and Welsh governments. On Tuesday, Scotland said that Hogmanay street parties will be cancelled, while Wales announced £60 fines for employees who refused to work from home.

The number of reported Covid cases across the UK fell on Tuesday raising hopes that the recent surge may be starting to level, as there were 90,629 confirmed cases on Tuesday compared to Friday’s 93,045.

In a short video on Tuesday night, Boris Johnson said the situation with Omicron “remains extremely difficult but I also recognise that people have been waiting to hear whether their Christmas plans are going to be affected. So what I can say tonight is that naturally we can’t rule out any further measures after Christmas – and we’re going to keep a constant eye on the data, and we’ll do whatever it takes to protect public health. But in view of the continuing uncertainty about several things – the severity of Omicron, uncertainty about the hospitalisation rate or the impact of the vaccine rollout or the boosters, we don’t think today that there is enough evidence to justify any tougher measures before Christmas.”

Factors impacting on Sterling

As the Prime Minister noted, the possibility of new restrictions cannot be ruled out and will remain a headwind for the pound. This factor, combined with other reasons has limited the pound’s upside potential. The situation in the UK due to the rising number of Covid-19 cases, the potential of new restrictions next week and Brexit tensions have kept traders from buying the pound and limited any meaningful upside for the GBP/USD pair.

On the Brexit front, the UK Foreign Minister Liz Truss, who is now responsible for the Brexit negotiations, said that the UK’s position on the Northern Ireland Protocol remains unchanged. She added that the UK is prepared to trigger Article 16 if the role of the European Court of Justice as a final mediator in dispute-resolution in Northern Ireland is not reduced. Truss, who has taken over after Lord David Frost’s departure on Saturday, is seen by the EU as a more friendly and engaging counterpart. Frost’s resignation was met with relief by EU officials according to Politico. The former Brexit minister was criticised for its anti-EU, libertarian ideology. The bloc now hopes that Truss will be more determined to finish the talks on the protocol and focus on the relationship with the EU, countering Russia in Eastern Europe and the cyberspace.

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