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Pound US Dollar Exchange Rate Subdued amid Soaring Covid-19 Cases

December 24, 2021 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Trends Sideways as Covid Cases Weigh on Pair

The Pound US Dollar (GBP/USD) exchange rate has remained muted today as soaring Covid-19 cases and the spread of the Omicron variant place pressure on the currency pair.

At time of writing the GBP/USD exchange rate is at around $1.3410, which is virtually unchanged from this morning’s figures.

Pound (GBP) Moves Little as UK Covid-19 Cases Hit New Record

The Pound has remained subdued today amid a risk-on trading mood as the UK recorded a record new number of Covid-19 cases on Thursday.

Industry and transport networks are facing severe staff shortages due to staff illness and self-isolation periods. On Monday, Prime Minister Boris Johnson ruled out further restrictions before Christmas day although stated that further measures could be introduced as soon as Boxing Day if necessary.

Some more optimistic news regarding the Omicron variant may help boost Sterling today, as a study by the UK Health Security Agency (UKHSA) indicated that Omicron posed a lower risk of hospitalisation compared to other variants. UKHSA Chief Executive Jenny Harries said on Thursday whilst this was an ‘encouraging early signal’, it was important to consider that ‘this is early data and more research is required’.

The Pound’s movement could also be stifled by Brexit headwinds today as the 1 January deadline for new customs rules approaches. In data collected by the British Chambers of Commerce, 60% of companies said they had already experienced difficulties exporting goods to the EU under the Trade and Cooperation Agreement (TCA) introduced in January 2021.

Renewed hostilities over UK-French fishing rights are also likely to cause difficulty for Sterling, as France announced this week that they would be pursuing legal action against the UK come the new year.

US Dollar (USD) Growth Limited by Skyrocketing Covid-19 Case Numbers

The US Dollar has struggled to break out of a narrow range today, as a risk-on mood ahead of the Christmas break sees investors avoid the safe-haven ‘Greenback’.

USD is could see confidence fall further today as the US also struggles with soaring Covid-19 case numbers and the spread of the Omicron variant. The surge in cases has also hit the country’s travel sector as multiple flight operators have had to cancel over 200 Christmas Eve flights in the face of staff shortages due to the Omicron variant.

Whilst news that the US has now approved two antiviral pills for use against Covid-19 has been welcomed, experts have criticised the Biden administration for doing ‘too little, too late’.

Anne Rimoin, a UCLA professor of epidemiology, praised the rollout of widespread Covid-19 testing but as quick to point out how ‘woefully’ far behind the country was in that regard:

‘Unfortunately, it’s late in coming and will be a small drop in the bucket compared to the tsunami of cases on the horizon.’

Despite this, consumer sentiment figures released on Thursday showed an increase in December as the index rose from a decade low of 67.4 in November to 70.6. Household expectations of inflation fell, although survey directors were quick to point out that too few interviews were conducted to account for the impact of the Omicron variant. Should the index fall in January then expect the US Dollar to drop with it.

GBP/USD Exchange Rate Forecast: Will UK Government Announce Post-Christmas Restrictions?

Looking ahead, movement in the Pound US Dollar (GBP/USD) exchange rate is likely to be driven by the UK government’s response to skyrocketing Covid-19 case numbers.

Should the government decide to introduce additional restrictions post-Christmas then Sterling is likely to fall. Otherwise, the Pound may continue to steadily climb.

The US Dollar may also stumble if case numbers continue to rise.

However with most market participants off until the new year, trade in the currency pair is likely to remain exceptionally limited.

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