EUR: ECB wavering on inflation
USD: Omicron becomes dominant strain
Sterling continues to trade close to its recent lows after the threat of tighter Covid restrictions and reports from the retail sector that footfall over the pre-Christmas weekend plummeted 8.5% in Central London and 6.4 % in cities outside of the capital. Ahead of the Xmas break market liquidity is already very thin this week, and with no major economic releases scheduled before year-end, the pound’s short-term direction will be largely driven by the Government’s reaction to the surging Omicron strain.
The euro managed to regain some lost ground yesterday as broad risk-off sentiment engulfed markets once again. Adding to the bid for the single currency were surprise comments from ECB Vice President De Guindos where he stated, "Rising inflation in the Eurozone will not be as temporary as initially expected”. Having been the only G7 Central bank to maintain their forecast for no rate rise through 2022, these comments are in stark contrast to the ECB statement at last week’s meeting where they reiterated “inflation is transitory”. With future rate hike expectations priced so low, if this is indeed indicating a subtle change to the ECB’s official forward guidance then there is plenty of room for the euro to make a move to the upside in the short to medium term.
The dollar had a mixed trading session yesterday following the disappointing news that President Biden’s $1.75t “Build Back Better” plan is now unlikely to be passed by congress. The dollar did attract safe-haven flows as the rapid spread of Omicron continues to impinge on global growth forcing many counties to dramatically tighten their Covid restrictions ahead of the Holiday period. Ahead of Thursday’s key inflation data release, the dollar will likely remain in a tight trading range with Coronavirus news dictating the direction of travel.
Today's Interbank Rates at 07:55am against sterling movement vs yesterday.
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