Pound weakens after Britain warns of Omicron "tidal wave"

Sterling traded lower on Monday after British Prime Minister Boris Johnson warned of a "tidal wave" of the Omicron coronavirus variant and investors took the view the Bank of England would keep interest rates on hold given the uncertainty.

BoE policy makers meet on Thursday to decide whether to tighten monetary policy to keep inflation in check but the resurgent COVID-19 pandemic has prompted traders to price in a status quo rather than a rise in interest rates.

"Markets do not expect the Bank of England to move given the economic uncertainties created by omicron", UBS Global Wealth Management Chief Economist Paul Donovan wrote in a note.

Health Secretary Sajid Javid said the Omicron variant was spreading at a "phenomenal rate", accounting for about 40% of infections in London, and urged people to get a vaccine booster shot.

The government wants to offer all adults a booster by New Year, an ambitious target because the Christmas holiday is approaching and vaccinating 1 million people per day is around double the current rate of 530,000 per day.

The pound fell 0.26% to $1.3225.

The British currency was up 0.23% at 85.09 pence against the euro which is widely considered vulnerable to a U.S. rate hike with the Federal Reserve set to tighten policy more quickly than the dovish European Central Bank.

Pressure on the pound is also due to political risk.

Johnson faces a rebellion in his Conservative Party over measures to curb the spread of the Omicron variant and an outcry over alleged parties at his Downing Street office during last year's lockdowns.

"Sterling has come under a little more pressure over the last week on the back of Omicron restrictions, some softer activity data in October and perhaps some political risk premium going into the pound as the press sink their teeth into the government", ING analysts wrote.

Since the first Omicron cases in the United Kingdom were detected on Nov. 27, scientists have lifted the COVID-19 alert level to four on a five-point scale and Johnson has imposed tougher restrictions.

The Omicron variant, reported in more than 60 countries, poses a "very high" global risk, with some evidence that it evades vaccine protection, the World Health Organization says.