Pound holds just shy of two-month high on expectations

Pound holds just shy of two-month high on expectations

LONDON, January 5, Reuters -- The pound held just shy of 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 with the benchmark index rising to its highest in nearly two years due to growing expectations that Britain won't introduce COVID 19 measures clamping down on economic activity.

Last night s release of several research papers on Omicron's milder severity and now this morning that Boris Johnson is not looking to tighten restrictions after Christmas is keeping the pound bid, Nomura strategist Jordan Rochester said.

Prime Minister Boris Johnson 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 higher against the dollar for the second consecutive day to $1.3553, within striking distance of an early November high of $1.3566 hit overnight.

The pound has benefitted from stronger stock markets. Kenneth Broux, a strategist at Societetete Generale, said that the correlation between the pound's exchange rate and U.S. stocks has strengthened to its highest level in nearly three months.

Some elements of short-covering on the British currency have helped. The pound's net short bets are at the highest level since October 2019, according to the latest data.