GBP

Sterling has begun London’s first trading day of the new year strong against the euro, but on the backfoot against the dollar, suffering from rising US bond yields. With a sustained rise in coronavirus cases in the UK, Prime Minister Johnson yesterday warned that the National Health service will be under substantial strain in the coming weeks. However, the pound was buoyed as Johnson resisted the introduction of new measures commenting that the Omicron variant was “plainly milder” than earlier forms of coronavirus. Looking ahead, the pound could be damaged by Brexit related issues with British companies now facing the introduction of much-delayed post-Brexit border control checks, which will affect businesses importing £235bln of goods from the European Union. The Times reported yesterday that the Prime Minister has been told it is “inevitable” that Northern Ireland’s fragile power-sharing government will collapse if he fails to solve the dispute with the EU over the implementation of the border protocol.

EUR

The euro has fallen against the dollar in early trading continuing yesterday’s trend as the greenback regathered its strength in the start of the new year. The euro’s losses came as a rise in bond yields supported the greenback and forced the currency pair below key technical levels not seen for 2 weeks. The euro’s cause has not been helped this morning after the release of German economic data which showed that retail sales fell 2.9% year-on-year in November and employment data for the eurozone’s powerhouse, which also came in below expectations.

USD

The dollar reached its strongest level in nearly five years against the Japanese yen in far east trading, lifted by a jump in long term treasury yields, which leapt 12.5 basis points overnight to touch 1.64% for the first time in 6 weeks. Despite surging coronavirus cases in the US, investors now believe the Federal Reserve Bank will raise rates in May and hike twice more by the end of 2022. Later today the manufacturing PMI index for December will be released, but this week’s most important data release will be the minutes from the Federal Reserve Bank’s last meeting which are due tomorrow.

Economic Calendar

1.30 pm US Manufacturing PMI