Consumer Price Index (CPI) Year on Year Figures Higher Than Predicted

GBP

Concern continues to grow as the Omicron variant rapidly spreads across the UK and the world.

GBP/EUR remained in the 1.17 range during yesterday’s trading despite ongoing worries surrounding the new variant. Last week the UK’s Prime Minister Boris Johnson announced that people should work from home if they can and continued to enforce a face covering mandate. There is a big push for everyone eligible to have the booster vaccination to help slow the rapid spread of the Omicron variant. On Wednesday there were a total of 78,610 new confirmed cases, notably the highest reported figures for the UK since the pandemic began. However, hospitalisations are still relatively low which could indicate this mutation of the variant isn’t as deadly and/or the vaccine is preventing serious symptoms developing.

Yesterday saw the release of the Consumer Price Index (CPI) year on year figures. Data has shown figures reported at 5.1%, higher than the predicted 4.7%. These ever-increasing figures indicate inflation continues to rise. Today, the Bank Of England (BoE) Monetary Policy Committee will meet to discuss monetary policies and potential interest rate changes. In recent months there has been lots of speculation regarding interest rate changes however they currently remain at 0.1%. There had been hopes this month we would see an increase, however due to the uncertainty regarding covid and potential restrictions this could cause further delays to any changes from the BoE. Also released today will be the Markit services PMI, a high reading would be seen by traders a positive for GBP. This could have potential to cause movement on the currency markets depending on the outcome.

To end a week full of financial data Friday we can expect the retail sale figures which can be an indicator on consumer spending. Similarly, to PMI figures a high reading is seen as positive for the pound and has potential to support GBP strength.

EUR

As seen for the UK, Thursday will see a small flurry of financial data and news. Markit PMI composite are first up, figures are predicted by analysts to be 54 (above 50 indicates potential improvement/increase). The European Central Bank committee members will also meet on Thursday to discuss monetary policies and the interest rate decision. The prediction is that these rates will remain unchanged, but this still has potential to cause volatility within the market. Friday will also see the consumer price index figures released.

COVID-19 restrictions are being re-introduced for both European residents and tourists as many countries in Europe are trying to reduce the spread of the Omicron variant – as seen in other countries this is a very fast spreading mutation of the virus. However, restrictions placed on tourists could have a negative impact on both the tourist industry and the property market which could have further delay on the economic recovery within Europe. As countries such as France and Spain begin to push forward with their very own vaccination booster program, Germany scrambles to purchase millions of doses following shortages after a very successful week. Last week saw 6.4 million jabs delivered in Germany, the majority of which were boosters but to keep up with this impressive roll out they will need to purchase many more doses.

Wednesday’s trading saw EUR/GBP rates at 0.8528 at its highest. To be kept up to date with the Euro and other currencies please contact your account manager at Lumon.

USD

In recent trading the dollar has reached 12 months highs against sterling and continues to outperform its major currency pairings. Tuesday saw some volatility for USD upon the preparation for the Federal reserve bank interest rate decision on Wednesday.

The Fed have decided to keep rates unchanged during this month’s rate decision and monetary policy meeting. Also announced were plans to cut back its stimulus program quicker than originally anticipated due to rising inflation. Officials suggested the stimulus will end by March. Federal reserve chair Jerome Powell stated, “Economic activity is on track to expand at a robust pace this year, reflecting progress on vaccinations and the reopening of the economy and we are making rapid progress towards maximum employment”. There will be an interest rate hike expected in the first half of 2022.

Whilst Omicron is present in the US, the delta variant is still the most dominant out of the two. In a similar response to the rest of the world the US are focusing on rolling out the booster vaccination program. Anthony Fauci, President Joe Bidens chief medical adviser, provided data this week to prove a third dose of the Moderna Vaccine provided sufficient antibodies to ‘neutralise’ the virus.

Today will see the release of the jobless claims and Markit manufacturing PMI, which can cause volatility within the market.

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