Sterling has begun the week on the backfoot against the dollar falling around 0.4%, undermined by growing fears over the Omicron covid variant. On Sunday, Prime Minister Johnson warned that two doses of the vaccine would not be enough against the Omicron “tidal wave” that the UK was facing and this morning Health Secretary Sajid Javid said the variant was spreading at a “phenomenal rate and accounted for about 40% of all infections in London”. Investors are now assessing the impact this news will have on the Bank of England rate decision which will be announced later this week. In Brexit news, the UK issued additional fishing licences to EU vessels on Saturday in an attempt to resolve the months-long dispute over fishing rights for French fisherman.
The euro is down in early trading against the dollar, hurt by a rebound in U.S treasury yields. Both central banks are due to meet this week and concerns over the spreading Omicron virus within the Eurozone could force the European Central Bank to adopt a “dovish” stance at their meeting on Thursday. According to a recently conducted Reuters survey, economists see the ECB continuing to buy €40 billion worth of “pandemic” bonds per month through the end of 2022. About 70% of the respondents said the spread of the new covid variant was the biggest risk to eurozone economy next year.
The dollar edged higher on Monday as traders eagerly await the US Federal Reserve Bank meeting on Wednesday when they will learn how quickly the central bank intends to unwind its pandemic bond buying scheme and listen for signs of when it may start to raise interest rates in 2022. Friday’s consumer price index came in as expected and offered no further indications about whether the Fed will need to be more aggressive to combat rising prices. The dollar index, which measures the greenback against six major peers, was up 0.2%.