Market Update 29th November – 3rd December

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

GBP

We start the new week with an all too familiar situation; a new mutated edition of the coronavirus, Omicron, has led to the UK government reimposing restrictions ahead of Christmas. The new strain, first detected in southern Africa, has now spread to the UK and put pressure on an already struggling NHS. Although the restrictions are minimal at the moment, any further cases could slow the globes post-pandemic recovery. This has led to investors dumping stocks towards the back end of last week with the FTSE 100 falling 3.6%. Investors also took a risk-off approach with currency, which saw a large sell off for the Pound against the Euro, falling 1% on Friday. This has recovered somewhat as the new week starts, but some analysts believe this will be limited until the severity of the Omicron mutation is made clear. With regards to economic data, this week is quiet for the UK and so the news surrounding Covid will dominate the currencies movement

EUR

ECB monetary policy minutes last Thursday saw the bank admitting that inflation was more robust than first expected. The bank also said that they would keep their options open after December. The bank is also expected to announce a token reduction in their asset purchase program. German unemployment is expected to come in lower by 0.1% at 5.3% but any improvement will be clouded by the latest shift towards lockdowns. The first point of business seems to have been a move to resist a two-week lockdown proposed by the country’s outgoing Chancellor Angela Merkel. Some European countries have been steadily reimposing restrictions on activity and social contact for weeks while the Netherlands became the latest to go a step further on Friday when it announced that from Sunday all supposedly non-essential businesses would need to close from 17:00 each day. Tuesday’s Eurozone inflation figures are the highlight of the European calendar for the week ahead.

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.