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Sterling remains buoyant on UK government’s COVID-19 plans

Thursday 6 January, 2022

Daily Currency Update

With very little data to report in the UK, Sterling continued to be driven by news around COVID-19. Boris Johnson's latest Prime Minister's question time in parliament yesterday suggested that no further restrictions look likely in the UK. Though there are fears that the worst is yet to come for hospitals in the UK, Boris Johnson made a statement to MP's highlighting how he intends to 'ride out' the current wave without imposing more restrictions on the economy. He stated that the government will not 'shut down our country again' and hinted that the current Plan B curbs could be gone by the end of January. In his statement, he outlined plans to limit PCR tests to those with symptoms rather than asymptomatic to ease the pressure on the system but cut short on reducing isolation periods from 7 days to 5 days. The UK government's continued stance to protect its economy from further damage from lockdowns has been deemed by the market as positive. GBP has performed well over the festive period and started January on the front foot, with the GBPUSD pair touching on 1.36 overnight, the highest it’s been since the start of November 2021. Yesterday also saw GBPEUR testing close to the 1.20 handle, and the last time the pair was this high was back in February 2020.

Key Movers

Yesterday's US data suggested that the US economy remained buoyant despite rising COVID-19 cases across the country. The employment market is strong, and the Federal Reserve will be actively reducing stimulus this year. According to the minutes from the most recent Federal Reserve meeting, many participants felt that the asset purchase programme could be reduced at a faster pace and conditions for a rate hike could be met sooner if inflation remained high and labour market improvements continued. ADP employment data in the US yesterday reported its single largest increase in private payrolls last month since May. The US dollar made a strong recovery overnight after weakening significantly over the last few days. Focus now shifts to Friday's non-farm payrolls, America's most important employment release. With ADP rising 807,000 in December, the market may be expecting a strong reading. If their view is reinforced by tomorrow’s US ISM release, we could see the US dollar increase its gains into the end of the week. France reported record COVID-19 cases. Other countries in Europe have also reported record cases recently. The euro remains under pressure on the news, but positivity may be seen from the fact that countries like Germany, France and Belgium are easing quarantine rules. The UK has also announced that certain rules around travel and testing are being eased, suggesting that the general view is that the Omicron variant is less harmful than variants before it. France shortened its isolation period for positive patients from 10 to 7 days and can end isolation after 5 days, after negative tests with no symptoms for 48 hours. Today, Germany’s health ministry also recommended reducing the quarantine period to 7 days from 14 days. With this, the longer-term outlook for the euro could be more positive, though the uncertainty remains in the current harsher winter months.

Expected Ranges

  • GBP/USD: 1.3500 - 1.3590 ▲
  • GBP/EUR: 1.1920 - 1.1995 ▼
  • GBP/AUD: 1.8670 - 1.8935 ▲
  • EUR/USD: 1.1270 - 1.1335 ▲