Analysts said the currency has strengthened since mid-December. | Clodagh Kilcoyne

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Sterling on Monday hit its highest level against the euro since February 2020 amid rate rise expectations and easing fears about the adverse impact of the Omicron variant on the economy.

Analysts said the currency has strengthened since mid-December as UK government resistance to further COVID-19 restrictions provided a much-needed boost to sentiment.
Britain has focused on rolling out booster vaccinations - which have reached more than 60% of the population - rather than requiring a return to lockdown measures.

Meanwhile, investors have ramped up expectations that the Bank of England will raise interest rates as early as next month after a surprise hike in December.

"We are looking for a decent November UK GDP release tomorrow of 0.4% month over month, which should keep expectations alive of a further Bank of England rate hike on February 3," ING analysts said, recalling that overnight indexed swap (OIS) market prices an 80% chance of a 25 bps hike.

A preliminary estimate of UK gross domestic product for November is due on Tuesday.
Sterling dropped 0.1% versus the dollar to $1.358 at 0903 GMT, close to its highest level since November 2021 at $1.3599 touched last week.

It was 0.2% higher at 83.38 pence per euro, after hitting its highest level since February 2020 at 83.34.

The pound entered 2022 "with a tailwind of cautious optimism; the market will be looking closely at Omicron data, and any immediate indication of Liz Truss's focus areas, as an indication of the tone taken by the Bank of England in Q1," Joe Tuckey, FX Analyst, Argentex said.

Foreign Secretary Liz Truss is Britain's lead negotiator with the European Union over trade to Northern Ireland following the resignation of Brexit minister David Frost.

Truss said ahead of talks with the European Union over post-Brexit trade arrangements that the United Kingdom is ready to take unilateral action to suspend customs checks on goods moving to Northern Ireland.