The pound climbed to a two-month high on Wednesday as investors increased their expectations that the Bank of England will raise interest rates as early as next month after a surprise hike in December.
The stock market was boosted by growing expectations that Britain won't introduce COVID 19 measures clamping down on economic activity, with the benchmark index rising to its highest in nearly two years.
Last night's release of several research papers on Omicron's milder severity and now this morning's talk of Boris Johnson not tighten restrictions after Christmas is keeping the pound bid, Nomura strategist Jordan Rochester said.
Boris Johnson, Prime Minister, said on Tuesday that England could withstand a surge in COVID 19 infections without shutting down the economy as Britain reported another record daily high in cases fuelled by the Omicron variant.
The pound was up for a second day against the dollar to $1.3564, its highest since early November.
The pound has benefited from stronger stock markets. Kenneth Broux, a strategist at Societetete Generale, said the correlation between the pound's exchange rate and U.S. stocks has strengthened to its highest level in nearly three months.
Short-covering on the British currency has helped. The latest data shows that the net short bets against the pound are at the highest level since October 2019 and are at the highest level since October 2019.