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Euro Pound Exchange Rate Plunges as UK Study Eases Omicron Worries

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Euro Pound (EUR/GBP) Exchange Rate Slides on Omicron Study Data

The Euro Pound exchange rate has plunged today as rising optimism that the Omicron variant may cause less severe symptoms and fewer hospitalisations than other coronavirus strains fuels risk-on market trade.

The upbeat mood is weighing on safe-haven demand for the Euro, as well as Europe’s Covid-19 situation as more countries reintroduce stricter Covid rules.

Combined with strength in Sterling, the EUR/GBP exchange rate is down around 0.7% at the time of writing to trade at £0.8421.

Euro (EUR) Tumbles amid Risk-On Trade

The Euro has slumped on Thursday after market sentiment was lifted by reports that the Omicron variant’s impact may be less severe than initially feared.

Reports from an early real-world study based on UK data suggest the Omicron variant is less likely to hospitalise people compared to the Delta variant.

According to research from Imperial College London, hospitalisations are 40% lower, and in research by Edinburgh University there is a 65% reduction.

An earlier study in South Africa suggested those needing hospital treatment for the Omicron variant was 70-80% lower than the Delta variant.

Rising optimism has lifted the market mood, which has boosted riskier currencies and weighed on safe-haven demand for the Euro.

Meanwhile, tightening Covid rules in countries across Europe are also weakening EUR sentiment after Germany and Portugal joined other countries in the bloc in reintroducing restrictions.

Pound (GBP) Boosted by Omicron Data and Lack of Government Announcements

The Pound is soaring against the Euro today, with Sterling benefitting from the risk-on market mood driven by news the Omicron variant may be less severe than initially feared.

News that the UK government will not make any further announcements on UK Covid restrictions before Christmas has also support the Pound.

Health secretary said:

“We are not planning any further announcements this week. Despite the caution that we are all taking, people should enjoy their Christmases with their families and their friends – of course, remain cautious.

“We will keep the situation under review. We are learning more all the time as we have done from this new data … and if we need to do anything more we will, but nothing more is going to happen before Christmas.”

In addition, reports from the Independent that the UK and EU have agreed a post-Brexit fisheries agreement on 2022 stocks further bolster GBP exchange rates.

Analysts hope progress in these negotiations may set the tone for more positive developments in talks on other post-Brexit issues between the UK and EU.

However, daily UK Covid-19 infections hit a new record high above 100,000 for the first time, fuelling lingering concerns that restrictions may come into force in the UK after Christmas.

Euro Pound Exchange Rate Forecast: Covid-19 Cases Surge to Drive EUR/GBP

With thin market trade expected over the Christmas period and a lack of notable UK and EU data releases, further evidence that the Omicron variant may have a softer impact on economic activity than previously thought will drive volatility in EUR/GBP.

Meanwhile, the possibility of stricter Covid measures threaten economic activity in countries across the Eurozone as well as the UK, potentially driving additional movement in the Euro Pound exchange rate.