GBP: December rate hike in doubt
EUR: Covid restrictions weigh on sentiment
USD: Inflation highest since 1982
The pound managed to recover slightly from its recent very heavy losses, as Friday’s release of lower than forecast UK GDP data, and the recent tightening of Covid restrictions were more than offset by a weaker euro and US dollar. Whilst capturing the mainstream media headlines, the ongoing shenanigans at Number 10 are, as yet having to little to no effect on sterling as markets are more focused on increasing fears of a further increase to Covid restrictions and the upcoming BoE rate meeting.
The UK Covid alert has level has been raised following the rapid increase in Omicron cases after Prime Minister Johnson warned over the weekend that “no one should be in any doubt: there is a tidal wave of Omicron coming”.
The market’s pricing of the outcome of Thursday’s MPC rate setting meeting has swung violently following the surprise decision to leave rates unchanged at last month’s meeting. Current pricing for a rate rise at the December meeting has now fallen from a once 100% certainty to a now mere 10% probability as the onset of Omicron and dovish commentary from BoE hawk Saunders increase the chances of another “wait and see” outcome.
UK/EU post Brexit trade talks are set to continue this week with last week’s negotiations showing little sign of a breakthrough emerging, and UK’s Frost once again threatening to invoke Article 16.
A big week ahead for UK economic data, including Inflation, Employment, Retail Sales, and the all-important Bank of England MPC meeting due on Thursday.
Another quiet trading week for the euro as events elsewhere largely captured the market’s attention. The recent downturn in economic activity combined with the tightening of Covid restrictions continue to weigh heavily on the single currency. Despite surging inflation, the ECB remain steadfast that interest rates will not rise before the end of 2022.
Economic data slated for this week includes inflation data and the ECB meeting scheduled for Thursday.
A surging US dollar failed to extend its gains Friday despite data showing inflation reaching a near 40 year high. Markets had feared an even higher number than the recorded annual jump of 6.8%, and the ensuing relief rally in Bonds and equities helped ease the dollar lower.
The market’s focus is now firmly on Wednesday’s Federal Reserve meeting for news on the possible quickening of the tapering of the Asset Purchase programme and timing of the first hike in rates.
Retail sales data are set to be released Wednesday at 1:30pm ahead of the FOMC meeting at 7pm.
Today's Interbank Rates at 08:00am against sterling movement vs Friday.
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