LONDON, December 14, Reuters -- Sterling was pushed higher by a weaker dollar on Tuesday, but little changed against the euro, because uncertainty around the Omicron variant of COVID 19 limited the market impact of strong UK jobs data.
Since the first Omicron cases were detected in Britain on November 27th, the UK has imposed tougher restrictions. Prime Minister Boris Johnson faces a lot of opposition from his Conservatives in a parliamentary vote on the measures later on Tuesday.
On Sunday, Johnson said Britain is facing a tidal wave of the variant and on Tuesday he warned ministers that there will be a huge spike in cases.
The pound fell on Monday due to Omicron fears but on Tuesday it was little changed against the euro, at 85.385 pence per euro against the dollar, which was up 0.3% at $1.32530, pushed higher by a slip in the dollar. The dollar was still near one-week highs, supported by its role as a safe-haven currency, and expectations that the U.S Federal Reserve would be hawkish at the meeting this week.
The spread of the Omicron variant has raised fears of an economic slowdown, prompting investors to bet against the Bank of England raising rates at its meeting on Thursday.
Kit Juckes, head of FX strategy at Societete Generale, said nobody expects Sterling to stay steady for the rest of the session, and that nobody expects anything from the MPC Monetary Policy Committee on Thursday.
Omicron just means that if it wasn't a bad idea to do something about monetary policy in December already, it's a completely daft idea. Omicron clearly adds a layer of uncertainty and a layer of downside risk for the economy. The pound barely reacted to the UK jobs data earlier in the session, which showed British employers hired a record number of staff in November, suggesting that the labour market has to do with the end of the government's furlough scheme.
TD Securities strategists said that the economic outlook has been overtaken by Omicron concerns and we continue to expect no change in monetary policy this week.
The BoE is under pressure to address fast-rising inflation. The International Monetary Fund warned the central bank not to use an 'inaction bias' in its approach to combating price pressures. The inflation data for the UK is due on Wednesday.
While England's new Plan B measures against COVID 19 are quite light touch for now, the fact that they come without any fiscal support introduces some uncertainty on the jobs front going forward, according to Deutsche Bank strategist Shreyas Gopal.
Gopal said that Deutsche Bank did not expect sterling to move significantly in the direction if the BoE hikes or holds rates, despite the fact that Deutsche Bank still expected a rate hike.