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By Sujata Rao
LONDON, Dec 23 (Reuters) - Sterling rose to one-month highs
against the dollar and euro on Thursday, benefiting from some
reassuring reports on the Omicron COVID-19 variant and a move
higher in Britain's short-dated government bond yields.
A three-dose course of AstraZeneca's COVID-19
vaccine is effective against Omicron, the company said, citing
data from an Oxford University study. Its findings match those
from rivals Pfizer-BioNTech and Moderna, which say a third shot
of their vaccines works against Omicron.
Coming on top of reports that Omicron patients are less
likely to need hospitalisation, the news raised hopes that
governments may not need to widen restrictions on activities,
allowing economies to recover.
Britain also cut its COVID-19 self-isolation period to seven
days from 10 days for those who test negative two days in a row.
UK businesses posted the weakest quarterly growth since the
three months to April when lockdowns were in effect, the
Confederation of British Industry (CBI) said.
By 1030 GMT, the pound rose 0.4% to the dollar at $1.3380,
just off a one-month peak of $1.33875 hit earlier.
Against the euro, it firmed to the highest in a month, up 0.4%
to 84.45 pence.
UK gilt yields rose too, outstripping German and U.S. peers,
with 10-year yields up 4.5 basis points and two-year yields
hitting the highest since early November.
Nomura strategist Jordan Rochester noted a pickup in UK
"real" or inflation-adjusted yields. British 5-year real yields
are up some 60 basis points since mid-December. while its U.S.
and German counterparts have flatlined, Refinitiv data shows,
"If you're looking for why sterling remains bid, it's the
continued pickup in real yields," Rochester said, though he
suggested the moves were attributed more to Christmas volumes
"rather than the start of a new uptrend" with the positive
impulse from BOE rate hikes already largely priced in.
Money markets are factoring in 100 basis points of rate
hikes from the BOE in 2022 but Rochester noted headwinds to UK
growth from soaring gas prices and full EU customs controls
kicking in from Jan. 1.
The pound has risen 1.6% to the dollar since Dec. 15, just
before a surprise Bank of England interest rate hike.
Societe Generale analysts said the latest pound gains had
also kicked off as the dollar failed to break above $1.32 on
Wednesday, triggered short-covering.
More positive Omicron news may be needed to fuel further
significant moves, they added.
(Reporting by Sujata Rao; Editing by Catherine Evans and
Bernadette Baum)
