GBP

Sterling has slipped back over the weekend with any gains seen on Thursday, following the Bank of England’s decision to raise interest rates, having now been erased. The main driver for this weakness was an increase in covid cases – figures released on Sunday showed the UK reported 82,886 new cases, more than at any point during the pandemic. Meanwhile, pressure continues to mount on Boris Johnson with the UK’s Brexit Minister Lord Frost resigning on Sunday stating, “we have not made enough progress on NIP”. Trade Minister Lizz Truss will be heading Brexit negotiations from now onward. Deputy Prime Minister Dominic Raab said this morning he couldn’t make any guarantees when asked whether the government would impose further restrictions before Christmas to control the spread of Omicron.

EUR

The Euro has weakened this morning with market participants striking a nervous tone following the latest covid-related news. The Netherlands became the latest European nation to go into lockdown with Prime Minister Mark Rutte ordering the closure of all but essential stores, as well as restaurants, hairdressers, gyms, museums and other public places from Sunday until at least January 14th. In Germany, Economy Minister Habeck noted that a full lockdown would not be required but they will need to impose additional restriction measures. Elsewhere, the ECB’s position on rates was further solidified when European Central Bank Governing Council member and Spanish central bank chief Pablo Hernandez de Cos said that “there are no conditions to raise rates in 2022”.

USD

The US dollar hovered near 18-month highs this morning as it benefitted from a risk-off mood and new rate hike optimism. Speaking on Friday, Federal Reserve Governor Chris Waller said an interest rate increase will likely be warranted “shortly after” the Federal Reserve ends its bond purchases in March, and the central bank should also begin reducing its bond holdings as soon as the summer to attack “alarmingly high” inflation. As a result, the dollar index, which measures the currency against six major peers, stood at 96.629, not far from the peak at 96.938 reached last month. In other news, White House medical adviser Dr Anthony Fauci avoided calls for additional restrictions but urged people travelling to visit loved ones to get booster shots and always wear masks in crowded public spaces.

Economic Calendar

No major economic releases today