On the last day of November before the Christmas period begins, we see sterling continue to weaken against the euro and dollar. The previous weeks tough time for sterling continues into the latter stages of November, at the time of writing GBP/EUR sits at 1.1798 and cable at 1.33.
The discovery of the new omicron variant in Southern Africa and Hong Kong caused sterling to fall from it’s position in the high 1.18’s during Thursday’s trading. This decline continued into Friday as the market sentiment was switched firmly to ‘risk off’, this sell off caused the decline to continue for GBP/EUR to over a cent. Cable sat at an 11-month low. Investors placed their funds into safer haven currencies such as the greenback and the euro.
Monday’s trading saw market sentiment stabilise, with sterling beginning the day making small gains back against several G10 currencies. As the UK focuses on learning to live with the virus, the roll out of the booster program gained traction with 2.5 million doses being completed each week by the NHS so far. The booster dose has been shown to significantly increase the immune response, which will help counter any advantages this variant may have.
Neil Shearing, Group Chief Economist at Capital Economics stated, “If Omicron proves a false alarm, similar to the Beta strain, which was detected last summer, then risk appetite could quickly be restored,” giving sterling a boost against its euro counterpart where stricter restrictions are more likely to come into force. The Netherlands has now followed Belgium and Austria into placing partial lockdown restrictions on its citizens.
In the UK, new covid restrictions were also introduced today. New travel restrictions have come into force with several countries moving back to the red travel list and self-isolation/PCR tests reinforced within 2 days of returning to the UK. Mandatory mask wearing will also be reintroduced for the Christmas period to curb the spread of infection and to not see a repeat of 12 months ago where Christmas was ‘cancelled’ for many families.
These additional restrictions are seen as being a potential headwind to economic growth and have meant the market has further lowered the odds of a December rate hike. “Difficult decisions lie ahead for the Bank of England, which must balance a potential knock to the economic recovery with evidence of increasingly widespread cost pressures and tight labour market conditions. The odds of a rate hike at next month’s Monetary Policy Committee meeting may be receding” claimed Ross Walker, Chief UK Economist for Natwest Markets.
If you have any questions regarding the potential impacts of Omicron on the state of sterling, please contact your account manager here at Lumon.
Friday’s market sell off provided the single market currency the ignition to regain some losses against sterling and the dollar. The euro regained 100 points on Friday to go back above 1.13 against the dollar and bring GBP/EUR rates back into the high 1.17’s. At the time of writing, the euro currently sits at 1.1269 against the dollar and 1.1791 against the pound. A mixed Monday for the euro, losing traction against the dollar while holding its gains against the pound. The move back into the 1.12’s for EUR/USD comes with Monday’s reversal of Friday’s sell off, with FX analysts seeing Friday’s sell off as a dollar buying opportunity.
The news of the omicron variant has swept the eurozone with the first cases being reported in Belgium on Friday. Several European nations have now begun to increase the restrictions heading into Christmas to combat the spread of the virus. The Netherlands has followed Belgium, placing curfews on non-essential shops and bars, elsewhere Austria has gone into a 10-day national lockdown being the first European nation to reinstate the lockdown procedure.
If you have any questions regarding the current covid regulations being enforced in Europe, please contact your account manager at Lumon.
USD continues to go from strength to strength, the greenback sits at an almost 11-month high against sterling and 16-month high against the euro. The Greenback regained the losses made Friday against the euro as previously stated above today. Friday’s sell off provided many investors the opportunity to take advantage of its haven status.
The release of positive jobless claims data, 30-year high inflation levels and Friday’s non-farm payroll data release is convincing investors that the Fed could increase interest rate levels much earlier into 2022 than expected. Goldman Sachs Co -head of global foreign exchange strategy, Zach Pandl noted “our economists now expect the FOMC to accelerate the pace of QE tapering and to wrap up the process in mid-March”. An early interest rate lift could prevent any rate recovery for the euro and the pound against the dollar heading into 2022.
Will the dollar continuing to make further ground the other G10 currencies over Christmas? Contact your account manager at Lumon to discuss.
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