GBP EUR Exchange Rate Elevated as UK Stall on Stricter COVID Restrictions
The GBP/EUR exchange rate elevated slightly yesterday after the UK government decided to stall introducing stricter COVID-19 restrictions despite the rising number of cases a few weeks ago.
Following Chancellor Rishi Sunak’s announcement yesterday, additional support will be given to businesses in the leisure and hospitality sector since the recent Omicron outbreak. The government also plans to give businesses a £6k one-off grant and cover the SSP costs for COVID-19 related leave for small to medium-sized businesses in England.
Prime Minister Boris Johnson said: “With the surge in Omicron cases, people are rightly exercising more caution as they go about their lives, which is impacting our hospitality, leisure and cultural sectors at what is typically the busiest time of the year.
That’s why we’re taking immediate action to help with an extra £1 bn in grants to these industries and reintroducing our Statutory Sick Pay Rebate Scheme.”
There are also rumours that Boris Johnson could slash the self-isolation period from 10 days down to 7 to ease the NHS staffing crisis. We are yet to hear if this will become a concrete plan. Later today, we can also look out for the release of the Gross Domestic Product (GDP) report from the National Statistics. This could bring some volatility for GBP just before Christmas.
The European Union (EU) has voted to make COVID-19 passports valid for 9 months, making booster shots a likely requirement for traveling within the EU in 2022. Additionally, Italy, Germany, Spain, and France recently introduced new travel restrictions for UK travellers with France only allowing essential reasons excluding business and tourism. On the other hand, Germany’s new travel ban only allows residents/citizens to travel back to Germany from the UK.
Spain has closed its borders and Italy requires a negative PCR test result and a self-isolation period for the unvaccinated.
Yesterday, the release of the GFK Consumer Confidence Survey dropped from -1.8 to -6.8 for January. This comes as a shock as economists had forecasted a more tolerable decline of -2.7. Both economic and income expectations have dropped remarkably since leaning to save had escalated and the propensity to buy has lessened.
GFK expert Rolf Bürkl said: “Consumer sentiments continue to be under a lot of pressure from two sides as the year draws to a close. High case numbers due to the fourth wave of the Corona pandemic with further restrictions, as well as significantly increased prices, are putting more and more pressure on consumer sentiments. Above all, the 2G rule, requiring customers to be either fully vaccinated or have recovered, which applies to large parts of the retail sector deals a heavy blow to the holiday business.”
GBP/USD lifted to a near 1.3250 high yesterday amid Omicron fears. It is set to be the most dominant of the variants now in the US with the strain taking over 73% of newly reported cases last week. The rise in cases in the US has now forced big sporting events to be cancelled or postponed. In addition, many schools and universities have now regressed to online learning until the numbers die down again.
President Biden is set to release new steps for combating the rise in cases. Many have said this is to include new border controls and restrictions on indoor gatherings. He is also set to announce free COVID-19 at-home tests.
Reports suggest that the US Federal Reserve is set to cut back its stimulus programme more promptly than expected following the rise in inflation rates. And once the move has been made it will then make way for another interest rate hike in 2022. With November’s inflation data showing a rising stride not seen since 1982, the central bank’s policymakers have been forced to resolve the issue.
Later today, the Gross Domestic Product (GDP) analysis is set to release with the US jobless claims and new home sales data to follow tomorrow, bringing about some volatility for the USD.
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