Sterling slips as England introduces plan b
Thursday 9 December, 2021
Daily Currency UpdateThe pound took a hit yesterday as the UK Government unexpectedly confirmed that England would be put under tighter restrictions from tomorrow in an effort to combat the Omicron variant of COVID-19. The tighter controls mean face masks are mandatory for indoor venues such as cinemas and shops and from Monday 13th Dec people should work from home if they are able to.
Also likely from next Wednesday will be the introduction of proof of vaccination or negative test to get into nightclubs and sporting stadia with a capacity above 10k people. The news caught the markets off guard and the pound fell towards a 2021 low v the US Dollar briefly touching 1.3160.
GBP/USD seems to have found some stability around the 1.32 level and a lot of its direction will now depend on the Bank of England's interest rate decision next Thursday. Should we see a hike or an indication that the Bank is going to hike in February then this could support sterling. The day before the decision is the latest print of UK inflation so if this comes in higher than predicted then this may force the bank's hand into raising rates to control the rising cost of goods and services. Also supporting the pound is the UK's vaccination campaign which is amongst the world’s best. However as we have seen before, should markets get spooked by the spread of Omicron one of the first beneficiaries will likely be the US dollar given its status as a safe haven asset. GBP/EUR trades around 1.1670.
Key MoversGermany saw its new Chancellor, Olaf Sholz, sworn in yesterday ending Angela Merkel’s 16 years at the helm of the world’s fourth largest economy. Sholz comes to power as Germany is hit by another wave of COVID-19 with daily deaths recently posting their highest number since February. Despite a relatively high uptake of vaccines there is still a large number of the population who remain unvaccinated which is heaping pressure on the local health system.
Today we have some mid-tier data from the States with the weekly Unemployment Claims number due at 1:30pm. It is unlikely this will move the markets much with tomorrow’s US CPI number the main event of the week. EUR/USD continues to trade in a relatively tight range and is currently at 1.1320.
- GBP/USD: 1.3160 - 1.3300 ▼
- GBP/EUR: 1.1615 - 1.1735 ▼
- GBP/AUD: 1.8390 - 1.8525 ▼
- EUR/USD: 1.1270 - 1.1380 ▼