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Pound strengthens as Omicron fears ease

currency-newsPound strengthens as Omicron fears ease
The Pound ticked higher on Monday as market mood improved on easing concerns over the Omicron coronavirus variant.

Meanwhile, the pound is mixed so far this morning, with GBP/EUR stable at €1.1765 and GBP/USD flat at $1.3264. GBP/CAD is slipping at C$1.6863, while GBP/AUD and GBP/NZD are weakening at AU$1.8690 and NZ$1.9591, respectively.

Looking ahead, will the euro extend its losses today on the back of a forecasted deterioration in the German ZEW economic sentiment index?

What’s been happening?

The pound firmed against the euro and US dollar on Monday as market risk appetite returned.

Market sentiment improved as concerns over the Omicron coronavirus variant appeared to ease following early reports that the variant may be less deadly and have milder symptoms than others.

Comments from Bank of England (BoE) deputy governor Ben Broadbent also supported Sterling by renewing speculation for an interest rate hike, although unlikely at this month’s meeting.

The BoE policymaker said inflation will likely soar above 5% next spring and warned the tight UK labour market will add persistent inflationary pressure.

The US dollar fell in line with lower US Treasury yields at the start of this week’s session as a risk-on market mood dented demand for the safe-haven currency.

However, expectations for the Federal Reserve to begin accelerating tapering of its bond-buying programme tempered USD losses.

Meanwhile, the euro weakened yesterday after German factory orders slumped -6.9%, well below forecasts of -0.5%.

What’s coming up?

Looking ahead, the euro may come under more pressure today as forecasts point to a weak German ZEW economic sentiment index reading for December as coronavirus infections soar in the country.

However, the single currency could temper its losses after German industrial production figures released this morning came in above forecast at 2.8%, while the third estimate for third quarter Eurozone GDP is expected to confirm 2.2% growth.

Meanwhile, aside from a forecasted narrowing of the US trade balance, the US dollar will likely remain sensitive to risk appetite and Federal Reserve rate hike bets.

In the absence of notable data releases, the pound’s movement will likely be driven by Omicron variant developments, news about UK-EU talks on the Northern Ireland protocol, and BoE rate hike expectations.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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