© Reuters. FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble/File Photo

By Sujata Rao

LONDON (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 (NASDAQ:)’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 (NASDAQ:), 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 (PA:) 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.

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