GBP

The pound lost ground against a broadly stronger dollar but gained against the euro on Friday. The single currency has been hurt by covid fears, while the greenback continues to find support from safe haven flows. On Friday, Bank of England chief economist Huw Pill said the weight of economic evidence was shifting towards a rise in interest rates next month. However, Governor Andrew Bailey interviewed by the Sunday Times sounded less convinced, saying there was a chance that inflation does not prove as persistent as feared. As well as interest rate expectations directing the pounds movements, traders will look towards Brexit negotiations which continue this week. Writing in the Mail on Sunday, Brexit minister Lord Frost warned that that the UK will have to safeguard its position “in other ways” if an agreement is not reached with the EU over the Northern Ireland protocol. Responding to the article in an interview with the BBC, European Union Vice President Maros Sefocovic said progress had been made and urged London to double their efforts so that all outstanding issues could be solved.

EUR

The euro remain on the defensive against its major peers, as the rise in covid cases in Europe continue to weigh on the single currency. Today Austria returned to a full lockdown, as gathering places including restaurants and bars as well as non-essential shops closed for at least 10 days. Austria’s lockdown comes amid a continued surge in cases in neighbouring Germany and the country’s health minister has not ruled out following Austria’s lead after reporting 637,000 active cases, almost double the 2020 peak.

USD

The dollar has benefited from risk aversion in early trading. The greenback is trading close to the 16-month high hit against the euro on Friday and 2-month highs against the Australian and Canadian dollar, which were sold after a slump in commodity prices. The dollar has been given additional support from Federal reserve policymakers comments. On Friday, Federal Reserve Bank vice chairman Richard Clarida said it would be appropriate to debate faster stimulus tapering and earlier rate hikes at their next meeting as inflation surges. His comments echoed those by Atlanta governor Christopher Waller who called for the central bank to double up on its bond purchases so they are finished by April, to make way for a possible rate hike in the second quarter of next year.

Economic Calendar

13.30 US Chicago Fed National Activity