GBP

The pound was given a further boost this morning, holding on to yesterday’s gains and more, when an Astra Zeneca study showed that a third vaccine dose was just as effective against the new variant as two doses against the delta. Sterling’s positive moves on Wednesday came when market risk sentiment improved as investors turned optimistic amid reports that the current vaccines may be more effective than first thought in fighting the new covid variant. Adding to this news, studies from the UK and South Africa suggested reduced risks of hospitalisation and severe disease in people infected with Omicron compared with the Delta strain. This helped ease concerns that fast spreading Omicron could derail global economic recovery and boosted investor’s confidence in “risk” currencies. However, Brexit related issues could make it difficult for Sterling to find further traction. Yesterday, UK foreign minister Liz Truss, now in charge of Brexit negotiations, said that the UK’s position on the Northern Ireland Protocol remains unchanged and she reiterated that the role of the European Court of Justice as final arbiter in the trade arrangement must change, and the UK remains prepared to trigger Article 16 if this does not happen.

EUR

The euro gathered momentum on Wednesday and advanced to highest level in a week against the dollar, as a risk positive environment made it difficult for the greenback to find demand. However, in early trading the single currency is struggling to hold on to those gains and EUR/USD is currently testing new key support levels as investors once again look to the divergence in central bank monetary policies between the Federal Reserve Bank and the European Central Bank over the coming year.

USD

The dollar has remained on the back foot in early trading, having lost ground yesterday when fears of Omicron’s severity subsided and prompted a flight from the safe haven greenback. While the dollar index remains unchanged on the day in early trading it is still at its lowest level in over a week. While the dollar has lost out to other currencies amid the rebound in investor risk sentiment this week, most analysts expect it to strengthen in the weeks ahead as the Federal Reserve begins to tighten monetary policy faster than other central banks. Data released on Wednesday showed U.S. consumer confidence improving more than expected in December, suggesting the economy would continue to expand in 2022 despite a resurgence in COVID-19 infections and reduced stimulus spending.

Economic Calendar

13:30 USD Durable Goods Orders (Nov)
13:30 USD Non-defence Capital Goods Orders ex Aircraft (Nov)
13:30 USD Initial Jobless Claims (Dec)
15:00 USD Michigan Consumer Sentiment Index (Dec)
15:00 USD New Home Sales (MoM) (Dec)