The pound begins the week above 1.17 against the euro and above 1.32 against the US dollar. With the Bank of England’s surprise decision to increase interest rates from 10 basis points to 0.25% on Thursday, we can see why it is one of the best performing currencies across the board. The UK’s high inflation rate will be watched closely in the forthcoming months with some forecasts having UK inflation getting up to 6% by April next year. If the Bank of England is to get inflation back to the desired 2% it looks like more interest rate hikes will be necessary.

Historically, an interest rate hike could see GBP gain more against the major pairs. The Omicron variant continues to add downside risk to the UK economy, with rumours of a two-week snap lockdown being discussed in government. Cases in the UK hit 82,886 on Sunday, with a seven-day average of 78,229. The high streets and city centres are feeling the brunt of this with footfall reducing by 5.9% on Sunday.

There is a very quiet start to the week in regards to economic data announcements. All eyes will be looking to the UK’s final estimate of third quarter GDP growth, which is expected to be 1.3%. Expect Omicron to dominate headlines in the build up to Christmas day.

Have a great day.

Author: Josh Saunders

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