GBP

Sterling is up on the day, but struggling for clear direction, trading within a tight range amid Omicron uncertainty. Several news agencies reported yesterday that the NHS would be overwhelmed if additional restriction measures were not introduced before Christmas and PM Johnson speaking after a 2-hour cabinet to discuss the situation, refused to rule out further lockdown restrictions saying he was looking at all kinds of measures to keep the variant under control. The Times and other media outlets said government ministers had pushed back the prospects of new restrictions before Christmas and that curbs lasting between two weeks and a month were more likely to be introduced after, possibly from 28th December.

EUR

EUR/USD is largely unchanged as the coronavirus threat lingers over the financial markets and European nations increase restrictions. The Netherlands entered a strict lockdown on Sunday and today Germany’s leaders are set to decide on new restrictions to come in after Christmas aimed at slowing the spread of the new variant but plans so far fall short of a full lockdown. New measures by Spain and Italy are also likely to be introduced. According to a report by Reuters, European Central Bank policymakers sought a greater acknowledgement of inflation risks but were rebuffed by the bank’s chief economist Philip Lane. In what was described as a robust and tense meeting, a significant number of policymakers questioned the quality of the ECB’s projections, pointing to their inconsistent track record, and argued that inflation was at risk of ending next year higher than the ECB’s expectations and this morning Slovak central bank Governor Peter Zazimair said “there is a risk that elevated inflation will stay for a longer time”.

USD

The dollar weakened a little in early trading in the wake of improving market for risk assets and currencies. Although wall Street’s main indexes closed deep into negative territory creating a demand for the dollar, major Asian equity markets staged an impressive recovery on Tuesday hurting the greenback. Risk appetite took a blow on Monday after U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden’s hopes of passing a $1.75 trillion domestic investment bill said on Sunday he would not support the package prompting a selloff in global markets.

Economic Calendar

13.30 pm US current account (3rd quarter)