UK Business warns over tougher coronavirus restrictions

Market Reports

Lawrence Kaplin 14 December 2021

GBP: Lockdown by stealth

EUR: Record high for natural gas

USD: Biding time

Sterling

Sterling had another rangebound day yesterday as markets digest the latest Covid restrictions and await Thursday’s Bank of England rate-setting meeting. Omicron news continues to dominate markets with the UK’s CBI warning of the new Plan B restrictions calling it a “lockdown by stealth”. UK businesses warned over the impact already being felt with UK airlines accusing the government of a "haphazard and disproportionate approach". Early studies are showing an approximate 5% decline in Christmas shopping and with the acute warnings from PM Johnson of a "tidal wave" of Omicron coming, the prospects for a further tightening of Covid restrictions cannot be ruled out.

Euro

The euro continues to languish close to its lows for the year as increasing Covid restrictions weigh heavily on the European economy. Adding to the economic slowdown fears, yesterday saw a renewed surge higher in EU gas prices, posting a gain of 11% and taking it to a record closing high. With Thursday’s ECB meeting expected to offer markets nothing new in terms of its monetary policy, the single currency is largely being driven by events elsewhere.

US dollar

The dollar had a much quieter trading session yesterday as markets weigh up the upcoming US Federal Reserve rate-setting meeting and the latest surge in the Omicron strain. Market expectations are for Fed Chair Powell to reinforce his recent hawkish policy U-turn and bring forward the timing of the first hike in rates to June of next year with the possibility of a further rate rise later in the year. Ahead of tomorrow evening‘s meeting, we have producer prices data set to be released today which are forecast to show a huge 9.2% year on year increase and will only add to the rising fears that inflation is out of control and the Fed are falling further behind the curve.