• Pound (GBP) drops as COVID cases rose 52% over 7-days
  • Government considers more COVID curbs
  • Euro (EUR) rises despite more rising Omicron infections
  • ECB has been the more dovish central bank

The Pound Euro (GBP/EUR) exchange rate is falling at the start of the week paring gains from last week. The pair gained 0.4% across the previous week, settling  +0.41% higher on Friday at €1.1775 after rising as much as €1.1832 earlier in the week. At 05:45 UTC, GBP/EUR trades -0.25% at €1.1746.

The pound gained across the previous week after the Bank of England raised interest rates for the first time since the start of the pandemic. The UK central bank hiked interest rates to 0.25%, up from the historic low of 0.1%.

The move from the central bank came as inflation reached a 10 year high of 5.2% year on year in November. The BoE now expected inflation to peak at 6% in April 2022. Data last week also showed that the UK labour market remained strong even as the government’s furlough scheme came to an end and that consumers kept spending keeping retail sales elevated.

Retail sales rose 1.4% in November month on month, well ahead of the 0.8% forecast.

Today the pound is moving lower as COVID cases surge across Britain. Britain recorded over 82,886 new daily infections over the past 24 hours, up 52% from a week earlier. The government is considering additional COVID curbs ahead of Christmas.

The UK economy was already slowing heading into the final quarter of the year. The hit from Omicron on the economy if likely to mean that the economy slowed even more.

The Euro fell at the end of last week after business morale fell in German for a sixth straight month and to its lowest level since February.

New COVID restrictions to curb the fourth wave of COVID have hit confidence in the service sector whilst supply chain issues have hurt the manufacturing sector.

Whilst the ECB were more dovish than the BoE last week, the Euro has remained resilient suggesting that maybe investors support the ECB’s more cautious approach.

There is no high impacting Eurozone data due today. Omicron headlines are likely drive movement in the pair. GFK German consumer confidence data is due to be released on Tuesday.