Jamie Jemmeson
January 4, 2022

Sterling Loses Ground on Omicron Concerns

During the holiday period, the Sterling was supported by a robust risk appetite as equity markets posted solid gains and the FTSE 100 Index advanced to a fresh 22-month high. However, yesterday we saw the Sterling tail off as expectations on a rate hike in February were paired back following concerns that the spread of Omicron could impact variable factors with the probability still sitting at 82.5%. 

The rhetoric from Prime Minister (PM) Boris Johnson also echoed this as he said that there is a need to recognise the pressure on the NHS and although no new restrictions have been placed, it remains a possibility. 

Overnight, Nationwide reported a 1.0% increase in house prices for November with a year-on-year (Y.O.Y) increase of 10.4% from 10.0% as asset-price inflation continues.

Looking to the day ahead, the market will keep a close eye on the manufacturer data and mortgage approvals. In addition, with the threat of further restriction, COVID-19 numbers will be closely watched following the festivities. 

Greenback Remains Well Supported Despite Rising COVID-19 Cases

The US Dollar rallied on Monday following a rise in US Treasury yields as investors speculated over an early interest rate hike in 2022, despite surging COVID-19 cases. The Federal Reserve (Fed) is expected to begin raising interest rates as soon as March following robust economic data last year and rising inflation rates. The Fed also announced it would end its pandemic-era asset purchases in March and have signalled three rate hikes in 2022. 

The highlight this week will focus on the Fed’s minutes report as investors look to digest the latest comments from policymakers surrounding the pace of the Fed’s tightening policies. Yesterday, we saw little economic releases with construction spending in the US increasing to 0.4% to a seasonally adjusted annual rate of USD 1.62 tn in November 2021.

Looking ahead to today, the ISM Manufacturing PMI for December and November Job-Opening data are set for release this afternoon. 

Euro Loses its Holiday Cheer

With some support during the New Year holiday, the Euro has lost ground this morning against its major rivals as the single currency has come under renewed selling pressure. EURUSD opens below 1.1300 with GBPEUR pushing through to the 1.1900 level. 

Yesterday, we also saw the final prints for European Manufacturing PMI with the Final Manufacturing PMI reading in line with expectations of 58.0 and remaining unchanged since last month. While the Final French Manufacturing PMI read above consensus at 55.6 versus 54.9 representing further expansion. Conversely, German Manufacturing PMI read below forecast at 57.4 versus 57.9, showing a marginal contraction.

Looking ahead to today, it is a relatively quiet day on the macro-calendar. We have already seen German Retail Sales month-on-month (MoM) read above the forecast at 0.6% versus -0.2%. Elsewhere, the Spanish Unemployment Change Data is due out this morning and is expected to read at -32.5K.

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