Market Update 6th December – 10th December

Where you will be able to keep up to date with all the latest changes in the currency market

GBP

The Pound has lost most of its Q4 gains against the Euro as we go into December and risks slipping towards early November lows if the market continues to dump risk currencies in favour of safe havens during the Omicron wave of infections. Research conducted on the new variant has so far shown the rate of spread is much higher than the Delta variant which suggests it has greater transmissibility and/or significant immunity to the current vaccines. Whilst the globe focuses on the new variant, investors have continued to dump any currency that poses a risk to their funds and favour currencies such as EUR, USD, and CHF. Against the Dollar, this is the lowest the Pound has been since December 2020, falling over 1% in the last 7 days. As we look at the week ahead, Friday’s GDP data for the UK will provide an insight into the status of the UK economic recovery early in the final quarter. The data is expected to be positive, although it does not take into consideration the new variant that has emerged over the last week, which would pose the most risk to GDP results.

EUR

The Dollar index jumped back above 96.25 on Monday, as expectations for a faster Federal Reserve stimulus tapering remained intact with policymakers appearing to be focused on signs of a tightening labour market and persistently high inflation instead of the threat from the new Omicron variant. Traders are looking ahead to the US CPI figures for release on Friday, which is usually seen by analysts as likely supporting the case for an earlier tapering and stronger dollar if results are high. The Pound to USD rate was weighed down as financial markets realised that next week’s meeting will see the Fed replace November’s plan to wind down its $120 Billion per month quantitative easing programme by the end of June 2022, which would give the Fed the option of raising its interest rate at any point after this stage. Ahead of the week there will be a focus on Broadbent’s comments around the new variant and whether it will change up the Banks forward guidance and thinking heading into the December meeting.

USD

The Pound to Dollar rate showed signs of stabilising near new 2021 lows last week and may attempt a rebound if global markets recover from recent losses this week. However, traders balanced concerns over the Omicron variant with expectations of Higher US interest rates. Atlanta Federal Reserve president Raphael Bostic was the latest among a growing number of fed officials stating openness to accelerating the pace of stimulus tapering after he expressed hopes that the momentum of the US economy will carry it through the next wave of the pandemic. Bostic also acknowledged the possibility of at least two rate hikes next year if inflation remains elevate. Overall, the markets are mainly monitoring closely any developments on the new variant as Japan suspended all new entries by foreign nationals on Monday.