The pound starts the week above 1.17 against the euro and above 1.32 against the US dollar. With the surprise decision by the Bank of England to raise interest rates by 10 basis points to 0.25% on Thursday, we can see why it is one of the best performing currencies overall. The UK’s high inflation rate will be closely watched over the next few months, with some forecasts pushing UK inflation up to 6% by April next year. If the Bank of England is to bring inflation down to the desired 2%, it looks like more interest rate hikes will be needed.
Historically, a rise in interest rates could see the GBP gain more against the major pairs. The Omicron variant continues to add downside risk to the UK economy, with rumors of an instant two-week lockdown being discussed in government. Cases in the UK reached 82,886 on Sunday, with a seven-day average of 78,229. Shopping streets and city centers suffered with a 5.9% drop in footfall on Sunday.
The start of the week is very calm for the economic data announcements. All eyes will be on the UK’s final estimate of third quarter GDP growth, which is expected to be 1.3%. Expect Omicron to dominate the headlines until Christmas Day.
Have a nice day.
Author: Josh Saunders
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