GBP

Sterling hit 11-month lows against the US dollar and fresh 2-week lows against the euro on Friday, as a new strain of possibly vaccine-resistant coronavirus was discovered. This morning, sterling has recovered slightly but remains nervous as analysts warned of more volatility with little still known about the new coronavirus strain “Omicron”, as the World Health Organization (WHO) dubbed it. With cases of Omicron having been discovered in Britain, investors are now reassessing the Bank of England’s rate hike prospects. Also dampening the mood around sterling were comments made by UK Brexit Minister Lord David Frost on Friday. He said that while the UK would still like to find a negotiated solution with the EU on the Northern Ireland Protocol, the gap between their positions is significant and the UK is ready to use Article 16.

EUR

The euro jumped by 0.9% against sterling and dollar on Friday as news of the Omicron variant benefitted the euro because of the dovishness of the European Central Bank. The ECB have consistently reaffirmed that they are not looking to raise rates, which means that Omicron-lead lockdowns are more likely to scupper rate hike expectations with the Fed and the BOE, therefore weakening the USD and GBP. The single currency has since softened as new cases of the Omicron variant were discovered in the Netherlands and Denmark. Investors now await today’s German inflation report for November, expected 5.4% YoY versus 4.6% prior. This will offer immediate direction to the euro with longer term moves expected to be driven by risk perception.

USD

The US dollar index – which measures the currency against six major peers – dropped to a one-week low of 95.973 on Friday but has since recovered to 96.204. The dip was courtesy of fresh covid fears which saw the S&P 500 drop by 2% and the 10-year US Treasury bond yield fall 9.4%. While the dollar usually stands to benefit from uncertainty because of its status as a safe haven, the Omicron variant could cloud the Fed’s hawkish stance on raising interest rates. Despite this, Atlanta Federal Reserve President Raphael Bostic was buoyant on Friday as he said he is hopeful that the momentum of the US economy will carry it through the next wave of the coronavirus pandemic and continued that he remains open to accelerating the pace of the central bank’s bond taper. Later today, Pending Home Sales a speech by Fed Chairman Powell will be eyed by market participants.

Economic Calendar

10:00am EUR Consumer Confidence (Nov)
13:00pm EUR German Harmonised Index of Consumer Prices (YoY)(Nov)
15:00pm USD Pending Home Sales (MoM)(Oct)
20:05pm Fed’s Chair Powell Speech