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Pound undermined by restriction uncertainty

currency-newsPound undermined by restriction uncertainty
The pound got off to a poor start this week as uncertainty over the UK’s Covid situation and the possibility of stricter restrictions weighed on the currency.

Sterling is trading in a narrow range so far this morning, with GBP/EUR flat at €1.1717 and GBP/USD stable at $1.3228. GBP/CAD is rangebound at C$1.7125, while GBP/AUD and GBP/NZD hold steady at AU$1.8593 and NZ$1.9663, respectively.

Looking ahead, with the threat of Covid restrictions still hanging over the pound, will GBP exchange rates push lower again today?

What’s been happening?

The pound stumbled out of the gates this week, undermined by speculation the UK government will soon tighten Covid restrictions in order to combat the spread of the highly infectious Omicron variant.

However, the reluctance of the government to announce any restrictions on Monday alongside a stronger-than-expected industrial orders reading from the Confederation of British Industry (CBI) helped to minimise Sterling’s losses.

The US dollar also weakened on Monday, with the currency falling in tandem with US Treasury yields after Biden’s ‘build back better’ bill was apparently sunk due to opposition from Democrat Joe Manchin, although these losses were largely offset by the prevailing risk-off mood.

The euro, meanwhile was able to benefit from its negative correlation with the US dollar, in spite of concerns over surging Covid infections in Europe.

What’s coming up?

Looking ahead, it seems clear that Omicron developments will remain a driving force in currency markets through the remainder of this week.

As such the upside potential of the pound is likely to remain limited so long as the uncertainty over restrictions persists.

Further limiting the appeal of Sterling today may be the publication of the CBI’s distributive trades index, which is likely to confirm that the current Covid restrictions dented retail activity this month.

For EUR investors the focus will be on release of the Eurozone’s latest consumer confidence index, where another deterioration in morale this month may weaken the euro.

Finally, in the absence of any notable US economic releases, the direction of the US dollar will likely be driven by external factors. Will a further souring of market sentiment help to push USD exchange rates higher?
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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