St Paul's cathedral in London

England moves to 'Plan B'

Lawrence Kaplin
Lawrence Kaplin 09 December 2021

GBP: Under pressure

EUR: Bystander

USD: Awaits key inflation data

Sterling 

The pound fell to a one-year low versus the US dollar yesterday as early morning reports circulated of an imminent increase to England’s Covid restrictions. The rumours were later confirmed by PM Johnson that the country would indeed be moving to “Plan B”. Sterling’s decline yesterday was across the board, making multi-month lows against a host of G10 currencies.

The announcement promoted numerous investment banks to push back their calls for a December rate rise to February 2022. UK business groups are calling for government support after the announced restrictions, with estimates that the new work from home directive could cost the economy as much as £2b a month.

Following last month’s surprise MPC 7-2 vote to leave rates unchanged, and with interest rate markets still pricing in a 50% probability of a hike in rates at next week’s meeting there is still room for further disappointment.

There are no economic releases scheduled for today.

Euro 

The single currency remains in a very tight trading range. With a benign interest rate outlook, the euro has largely been a bystander during this period of increased currency volatility. Following news of the highest weekly Covid case count since January, yesterday’s news that Germany recorded its highest number of Covid related daily deaths will do nothing to ease market concerns of tighter restrictions to come.

There are no economic releases scheduled for today.

USD

The dollar index eased back from its recent highs yesterday as positive reports from US drugmaker Pfizer showed three doses of their vaccine can “neutralise” the Omicron variant. Equities immediately spiked higher on the news, with US S&P 500 surging to within a whisker of its all-time high. Markets are now focussing on tomorrow's key inflation data ahead of next week's all-important Federal Reserve rate-setting meeting. Forecasts for the timing of the first rate hike have been edging ever nearer, with markets now looking for lift-off next June and a further hike in September.

Weekly employment data is slated for 1:30pm today.

Elsewhere 

The Bank of Canada left rates unchanged yesterday as expected, sighting continued Covid variant concerns. Chinese inflation data was released earlier this morning showing a rise from1.5% up to 2.3%, but perhaps more concerning was the enormous 12.9% annual increase in factory input prices.

Market rates 

Today's Interbank Rates at 07:43am against sterling movement vs yesterday.

Euro

€1.166

US dollar

$1.320

Australian dollar

$1.857

South African rand 

R20.76

Japanese yen

¥149.9

Have a great day.