GBP

Yesterday , the Bank of England became the world’s first major central bank to raise interest rates since the coronavirus pandemic and warned inflation was likely to hit 6% next year . Surprising the market for the second consecutive meeting the BOE said it had to act now , even with the uncertainty of the Omicron virus , because it saw signs of underlying inflationary pressures . Sterling rose nearly a full cent against the dollar and 0.75 % against the euro after the announcement .However, those gains were short lived as traders turned their attention to the worsening covid threat in the UK and hawkish comments from the European Central Bank and by close of play it was up moderately on the day . It remains steady in early trading.
Overnight , the Conservative party lost control of a parliamentary seat they had dominated for nearly 200 years as voters turned against Britain’s prime minister over a series of crises and scandals. Data released this morning showed Retail Sales increased by 4.7% on a yearly basis in November following October’s contraction of 1.5%.

EUR

The euro was supported yesterday when the European Central confirmed that the Pandemic Emergency Purchase Programme (PEPP) would end and the asset purchases under the PEPP would be conducted at a slower pace in the in the run up to March . However, it said it will maintain some of the effect by moving part of the purchases to its regular bond buying scheme . Following the announcement, it was reported that some “hawkish” members of the governing council were unhappy about the reinvestments from the pandemic scheme and disagreed with the Central Banks inflation forecast which was still seen as temporary . The Bundesbank , which sources said were one of the Central Banks that disagreed , this morning published their inflation forecasts for Germany which they predict will above 2 % through to 2024.

USD

The dollar index , which measures the currency against six major peers , has recovered slightly from the one week low it hit on Thursday . Any decline in the greenback will likely be short lived as after their statement on Wednesday , the Federal Reserve still appear to be ahead of other central banks in tightening monetary policy . On a day light on data, traders will look ahead to a speech by council member Christopher Waller for further clues on policy . President Biden gave his first warning to the public on the new virus yesterday, telling them it was going to spread more rapidly in the US and that a winter of serve illness and death awaits the unvaccinated .

Economic Calendar
!8.00 pm US Fed’s Waller speech