Sterling Remains Under Pressure

The pound remained under pressure at the start of the week as new covid restrictions weigh on the British currency. Last week’s move to ‘Plan B’ caused Sterling to be sold but the sell off was short lived as the pound recovered slightly on Monday against both the Euro and Dollar. The severity of the situation has called for emergency measures being put in place by Prime Minster Boris Johnson, further measures could be placed which could see Plan C being implemented. The U.K. economy remains on edge and the pound is suffering as a result.

The final interest rate decision of the year is set to take place on Thursday but it is unlikely that policy members will vote for a rate hike. With the emergence of the Omicron variant, the economy remains at risk of further restrictions and measures being introduced. We could potentially see further downside after Thursdays rate decision but the market and investors have already priced in the fact that the Bank of England aren’t looking to hike rates until next year so movement maybe minimal.

U.K. economic growth already slowed down sharply in October – official data revealed last Friday. With new measures being placed and poor GDP data from the previous month, the near term outlook looks bleak. We are likely to see a cautious approach from the Bank of England at Thursday’s meeting and the pound is likely to remain under pressure with limited upside in the near term.

Key announcements

7:00 – GBP – Claimant count change – Forecast at -31.5k from previous -14.9k
7:00 – GBP – Unemployment rate – Forecast at 4.2% from previous 4.3%
1:30 – USD – PPI m/m – Forecast at 0.5% from previous 0.6%
1:30 – USD – PPI m/m – set to remain unchanged at 0.4%