Good morning,

GBP reached 1.3749 against the USD yesterday, a two and a half month high, and hovers close to two-year highs against the EUR, despite Prime Minister Boris Johnson coming under significant political pressure in early 2022 as the US dollar maintains its recent weakness. For the pound political anxiety has been a source of weakness in the post-EU referendum period, but for now Johnson’s woes are not registering a material impact.

The Omicron wave has peaked in the UK and the daily positive cases have been in decline for seven days in a row; yesterday the UK reported 109K cases, down from 179K the previous Thursday. London hospitalisations have almost halved since 29th December highs and the prospects of a full unwinding of Covid restrictions towards month end continue to grow.

The main driver for GBP remains the Bank of England Policy, currently money markets are pricing in a rate hike for February and additional hikes that would increase the rate to 1.0% by year end, which suggests a steep rise for rates relative to other countries. Although if these forecasts are challenged, sterling could decline.

The euro advanced to its highest level since November reaching 1.1481 as the market awaits the US retail figures and Industrial Production data to be released this afternoon.

Have a good weekend.

Joseph Sidders, Relationship Manager.

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