GBP/USD: New covid strain, a sterling's nightmare before Christmas – MUFG

FXStreet reports that according to economists at MUFG Bank, the new covid variant challenges optimism over stronger global recovery and dampens sterling’s appeal in the end of the year.

“The new strain has already triggered a spike in new COVID-19 cases in the South of England prompting the UK government to place much of South East England, the east of England and London into tougher Tier 4 restrictions including shutting non-essential shops and personal services again and restricting travel between regions in attempt to slow the spread of the new virus strain across the country. In time the new Tier 4 restrictions will be imposed across the rest of the country as the new strain continues to spread.”

“The new tougher restrictions will likely have to remain in place until there has been greater vaccine roll out which could take months.”

“The negative developments clearly have increased downside risks for the UK economy and the pound, and will dampen the scope for any gains on the back of a Brexit trade deal before year end. The failure to contain the less contagious covid strains does not give us much hope that the new strain will not spread across the world creating similar disruption as in the UK. It provides some much needed relief for the US dollar following the recent heavy sell off.”