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British Pound strengthens on more positive Omicron news

By Rob Griffin

14:31, 22 December 2021

Collection of pound coins
Economists at ING have warned there are a number of potential clouds still looming over the currency – Photo: Shutterstock

The British Pound continued to strengthen today on the back of more positive news concerning the Omicron variant of Covid-19.

Sterling had climbed 0.5% to $1.33 by early afternoon in London as reports suggested the new strain may be less severe than Delta, the previous variant.

The uptick follows a troubled few weeks for the currency, which has been under intense pressure as the number of Covid-19 cases has continued to rise.

Threats ahead

The more positive moves by Sterling followed the support it received from last week’s surprise rate hike by the Bank of England.

However, economists at ING have warned there are a number of potential clouds still looming over the currency as we approach the end of 2021.

In a note, they stated: “The fast spread of the Omicron variant in the UK may keep some pressure on GBP around Christmas, in particular as the government may opt to impose some new restrictions.”

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Political turmoil

ING also suggested potential political turmoil may also weigh heavily on the currency, as markets assess government stability after the resignation of Brexit chief negotiator David Frost.

“Still, the pound was quite oversold before the BoE meeting last week and given it is now back to pre-meeting levels, its positioning is likely still overstretched to the short side,” it stated. “We think this could help limit GBP losses, but the risks still appear moderately skewed to the downside.”

Chris Beauchamp, chief market analyst at IG, noted this week that the Pound continued to bounce along near the $1.32 level.

“However, buyers need to be careful since, as we saw last week, there is plenty of selling pressure should a bounce develop,” he added.

Read more: GBP/USD price analysis: What is next after Fed and BoE?

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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