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Jamie Jemmeson
December 8, 2021

Could Political Pressure Add to Sterling’s Woes?

Sterling Remains Under Pressure Amidst Risk Off Tone

The Sterling continues to trade in a tight range as the markets decipher the ongoing situation with Omicron, potentially affecting the upcoming interest rate decision next week. Meanwhile, the UK housing market remains buoyant. Sales figures grew at a yearly rate of 8.2% last month – the same pace of growth in October. The 3.4% quarterly rise is also the highest since 2006, according to Halifax. Overnight, there were further developments in the No. 10 Downing Street’s leaked Christmas party footage that allegedly took place in December 2020 when lockdown was in place.  So far, there has been no impact on the Sterling, however, this may further develop.

It is a quiet day in terms of economic data, but the markets will stay abreast of information regarding Omicron and the political situation.

Risk Sentiment Increases as Omicron Fears Subside

The global financial markets closed higher yesterday as signs that the effects of Omicron might be less severe than initially expected. The markets’ focus will turn to next week’s central bank meeting for updated guidance over the monetary policy from the Federal Reserve (Fed). Additionally, the markets are expecting the Fed to double the amount of tapering when they meet in December. The current taper pace is $15bn per month with the current bond-buying programme at $105bn. Meanwhile, the US trade deficit narrowed to $67.1bn for October from a record of $81.4bn in September.

The economic calendar is light again today with no significant data releases scheduled. Investors will look to tomorrow’s jobless claims data for an update on the US’s labour market conditions ahead of the Fed’s meeting on 15 December. 

German Economic Sentiment Shows Decline

The German ZEW Index read above forecast yesterday at 29.9 versus an expectation of 25.3. However, this represents a decline in economic sentiment among institutional investors relative to November which read at 31.7. In contrast, the Eurozone ZEW Economic Sentiment Index showed an increased level of optimism among investors, reading above forecast at 26.8 and the November figure of 25.9.

Elsewhere, the political rhetoric will be closely watched as Olaf Scholz is expected to become the next Chancellor today.

Looking ahead to today, it is a relatively quiet macro-calendar for the Eurozone. Christine Lagarde is due to speak this morning which may catch the focus of the markets ahead of the European Central Bank’s (ECB) policy update next week. Aside from that, the markets will remain focused on the Omicron variant.

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