Oliver Valdez
January 13, 2022

Sterling’s Rally Continues Despite Omicron Cases

The Pound continues its bullish momentum this week against the Euro as it reaches a 2 year high. On Tuesday and yesterday, the Pound had a very successful trading day as it soared to a new resistance of 1.2009 regardless of issues with omicron and the continuous price rise of goods and services, the Pound has still managed to remain strong over the past few days.

Last week, there was no major economic news that could have affected Sterling’s performance in anyway, therefore the main reasons why the Pound has been doing well was due to the mainstream news.

Yesterday’s Covid figures showed that there were 129,587 new cases of the virus which has slightly dropped from Fridays figures which was at 178,250 cases. The UK has recently reached gloomy milestone of 150,000 deaths and counting since the pandemic began. The UIK is first country in Europe to reach this figure as well as the 7th country to reach this death toll behind Russia, Mexico, and Peru. Despite those figures, the country has remained open for business and continues the circulation of its economic recovery. This could be one of the catalysts on why the Pound has been performing so well compared to the Euro.

Some may still believe that the distribution of both Covid vaccines as well as the boosters are the reasons why the UK has remained open but cautious, but based on the historic data, another variant of the virus could be around the corner and impact the economy once again.

Another reason why the Pound remained strong was due to the interest rate rising to 0.25% to tackle the inflation which has risen to 5.1%. This has helped boost the currency as the Euro and the Dollar are yet to increase their interest rates. This means that the Pound will have a higher value purchasing any goods and services overseas.

Looking at this week’s economic news, the UK’s GDP month by month figure will be released on Friday which could cause some volatility on the market so make sure you keep up to date with us here at Lumon.

Europe Continues to Struggle with Restrictions and Inflation

Looking at last weeks economic news, the German and Spanish Unemployment rate improved compared to last month’s figures, but the Eurozone’s PMI data did not have a very good result. These figures did not cause major volatility on the Euro as there is more impactful news which currently affects it.

Staying with the topic of Covid, the virus continues to spread across Europe. The World Health Organization (WHO) has warned that more than half of Europeans could become infected with the Omicron variant within the next few weeks as cases reaches records numbers with France reaching daily cases of 368,000 new cases, Italy’s Cases has doubled within 24 hours and Germany has reported over 80,000 new infections which is more in a single day than at anytime since the pandemic has began.  

These cases have resulted to many restrictions across the Eurozone and has yet again made a major impact towards the single currency.

Another reason why the single currency is struggling is due its inflation, as the economy tries to rebound from the cause of the pandemic, Europe’s inflation has soared to 5.0% in December from 4.9% in November. This has now put a lot of pressure on the European Central Bank (ECB) to increase interest rates to mitigate the rise of the inflation. However, the interest rate hike news does not look like it’s going to happen anytime soon which could result in further weakness on the single currency.

There is no more economic news this week which could shake up the Euro but to keep in touch with us for any rate updates.

Dollar remains strong but for how long?

The Dollar remains consistent against its major counterparts however, looking at the past few days, it seems to be that it is now starting to become weaker against the Pound and has put more pressure on the federal reserve to hike their interest rates up.

Firstly, focusing on last weeks economic data, the non-Farm payroll was released last week on Friday. The news went against the Dollar, but the Unemployed rate went in its favour which caused a massive seesaw on the market. The non-farm employment (which is the number of people in jobs excluding the farming industry) decreased from last months 210,000 people to 199,000 people and the Unemployment rate has decreased from 4.2% to 3.9%

The main focus right now is the US inflation rate. Inflation rose to 7% year on year (which is the fastest increase since 1982) and 0.5% month on month between November and December. Over the last 12 month this inflation hike has resulted to many goods and services going up in price including air fares, oil and gas, meat, and rent.

James Bullard who is the president and chief executive officer of the federal reserve bank says that they could hike their interest rate up as early as March of this year to balance the effect of inflation. Bullard says, “The Federal Open Market Committee could begin increasing the policy rate as early as the March meeting in order to be in a better position to control inflation”. It is speculated that hike could reach up to 1.5% overall over the course of the year which could be a big plus to the Dollar if this were to happen.

Looking at this week’s data which could shape how the Dollar will look for the rest of the week. Today the Producer Price Index month on month will be released which is currently forecasted as 0.4%, anything less could cause major volatility on the market and tomorrow we have Retail sales month on month data which could also spark some volatility.

If you want to be updated on the Dollar, then do keep in touch with us here at Lumon.

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