The British pound fell to a three-day low on Monday, struggling to hold above $1.32 against the dollar as a risk-off mood swept through financial markets and pressured on policymakers to slow the spread of the Omicron coronavirus variant.
Britain has reported record levels of COVID 19 cases, with officials warning that the full effects of the latest wave are yet to be seen. The Prime Minister Boris Johnson held a meeting with senior ministers to discuss the situation.
The meeting came in the wake of growing public anger over reports of government officials holding gatherings and parties when Britain was under lock-down last year, raising doubts about Johnson's authority within his Conservative Party.
Brad Bechtel, global head of FX at Jefferies LLC, said the government of Boris Johnson is in a mess now with a series of issues and the by-election loss recently, combined with resignations and now COVID related restrictions in the short term.
The pound was 0.1% lower against the dollar, at $1.3224. The pound weakened by 0.6% against a reversal of the euro to 85.43 pence.
The pound has erased all its gains in the past on the back of the Bank of England raising interest rates last week.
The focus on Omicron and government disarray was only temporary with support from the blindsided BoE action in raising rates, according to NAB strategists.
When asked if the government would impose further restrictions before Christmas, Deputy Prime Minister Dominic Raab said he could not make any guarantees.
The latest positioning data shows that investors remain bullish on the British currency, with short pound bets at their highest levels since October 2019.