GBP

The pound has recovered some ground in early trading after hitting a 2021 low against the dollar and a 3-week low against the euro on Friday. Sterling’s losses came after Bank of England member Michael Saunders, one of two policymakers who voted to raise interest rates at last month’s meeting, indicated on Friday that he could withdraw his support for a rate hike this month as the covid variant threatens to damage the UK and wider global economy. The pound was further undermined by comments from Brexit minister Lord Frost, following his meeting with European commission Vice-president Maros Sefcovic. Lord Frost told reporters that the gap between the UK and EU regarding the implementation of the Northern Ireland protocol remains significant, and progress on many issues has been quite limited. Further talks are due this week. Bank of England policy maker Ben Broadbent is due to speak later today.

EUR

The euro remains under pressure by a broadly stronger dollar in early trading. Weaker demand from abroad drove a much bigger than expected drop in German industrial orders, including cars, data released this morning showed. Orders for German goods dropped 6.9% on the month, economists had been expecting a 0.5% fall. The drop was driven by a decline in foreign orders of more than 13% on the month, clouding the growth outlook for manufacturers in Europe’s largest economy. Speaking at the weekend, ECB president Christine Lagarde said that another virus wave was included in the central Bank’s adverse scenario and the economic impact will depend on virus measures taken. She again reiterated that a 2022 rate hike was unlikely, but the Bank would act if needed.

USD

The dollar ticked higher this morning as treasury yields rose off last week’s 10-week low after initial observations suggested those suffering from the new virus strain only had mild symptoms. The Omicron news from South Africa helped reverse the bond sell off which had taken treasury yields below 1.4% for the first time since late September on Friday. Although Friday’s job report came in below market expectations, it did little to shake the markets belief, that the Federal Reserve Bank will accelerate the pace of unwinding stimulus and raise interest rates next year. This was reinforced when following the release of last month’s non-farm payrolls, St Louis Fed president said he expected an upwards reversion for the November report and the Central Bank could look to raise interest rates before the taper of its pandemic stimulus scheme is completed.

Economic Calendar

11.30 GBP BOE’s Broadbent speech