LONDON, January 6, Reuters -- The pound fell against the dollar and euro on Thursday, recovering from its recent gains in a dip driven by dollar strength after the release of more hawkish Federal Reserve minutes.
The British pound, Australian dollar, and Canadian dollar were down against the U.S. dollar, which was boosted late on Wednesday and overnight by the minutes of the Fed's December meeting.
There were concerns about faster than expected monetary policy tightening as they showed that a very tight job market and unabated inflation might require the Fed to raise rates sooner than expected. European shares fell by 1%.
At 0900 GMT, the pound was down 0.4% against the stronger dollar at $1.3499.
It was down about 0.2% against the euro, at 83.625 pence per euro.
The pound had a strong start to the year, after having strengthened against the dollar on Tuesday and Wednesday and risen from the one-year low of $1.31615 seen in December.
The strengthening is due to investors seeing the Omicron variant of COVID 19 as less disruptive to the economy than originally feared, according to analysts.
MUFG currency analyst Lee Hardman said that the pound has a rebound over the holiday period, reflecting in part position adjustment as short positions have been scaled back.
The BoE's policy focus on addressing inflation concerns at their next policy meeting on 3rd February should be more encouraging Omicron developments for the UK economy. Prime Minister Boris Johnson has resisted imposing stricter lock-down measures in England, despite Britain having seen record prevalence of the disease.
Johnson announced on Wednesday that there was a relaxation of the rules around travelling to England, removing the need for a pre-departure test.
Yesterday s decision to relax travel rules shows that Boris Johnson's government is determined to push through the Omicron crisis without major restrictions, wrote ING strategists in a client note.
This should allow the pound to be supported once risk sentiment is stabilised, backed by the Bank of England. After a surprise hike in December, investors expect the Bank of England to raise interest rates as early as next month.