Sterling Under pressure As Covid Cases Increase


Sterling traded close to recent lows against both the euro and dollar yesterday as market sentiment remained risk-off amid uncertainty surrounding the impact the new strain of Covid may have on the U.K. economy.

According to the latest Covid-19 data, the U.K. recorded 101 new Omicron Covid cases with the daily total of Covid infections reaching 45,691. Worryingly for the UK, the latest weekly figures are the highest number of new weekly Covid infections since January with figures showing a total of 336,883 new infections were recorded in the last 7 days.

Sterling was further pressured by comments from U.K. Prime Minister Boris Johnson who stated that ‘early indications suggest the Omicron variant is more transmissible than the Delta variant’. The comments renewed investors fears that the government may have to tighten Covid restrictions should the infection rate continue to rise.

Sterling did enjoy a short spell of relief following comments from Bank of England policymaker Ben Broadbent who sees inflation above 5% in April. However, comments from hawkish policymaker Michael Saunders last week that there may be a case for waiting for more information before voting for a hike has forced investors to re-think expectations of a hike this month with February looking the more likely date.


The euro was resilient against sterling but fell against the dollar as risk-off market sentiment weighed on the single currency.

There were some bright sparks in European data released yesterday. Namely, German Industrial Production which exceeded market expectations to read 2.8% and German ZEW economic sentiment which exceeded expectations of 25.1 to read 29.9.

Eurozone third quarter Gross Domestic Product failed to offer any surprises and met market expectations of 2.2% growth.

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