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Markets strike a mildly positive tone ahead of Christmas

Thursday 23 December, 2021

Daily Currency Update

Investors struck a more positive sentiment in the financial markets yesterday, as three separate reports suggested that the Omicron variant may result in less severe illness than previous variants of the virus. Equity markets on both sides of the Atlantic rallied late on to finish up by 1% in what is a notoriously thin trading period for global markets. The old theory of the 'Santa rally' seems to also hold true this year as the markets rise ahead of Christmas. Whether this lasts post the Christmas euphoria appears to be seen, as there is a bumpy road ahead with much uncertainty around Covid and its variants, China's Evergrande story and inflationary pressures in 2022. In the short term though, the market appears to be putting risk back on the table, and as a result, the US dollar has also weakened over the course of yesterday. The US currency fell by 0.6% versus the euro and 0.8% versus the pound, while the pound held firm against the euro.

Key Movers

Today marks the only real data release for the week for the currency markets, with US core-PCE inflation being posted at 1-30pm UK time. Analysts anticipate a rise to 4.5% in November from a posting of 4.1% in October. This data point is watched very closely by the Federal Reserve in the US, as their key indicator of inflation. A strong reading here would suggest that the US central bank was correct in increasing the pace of the tapering of its asset purchase programme. However, if this reading falls short of the mark, questions may be asked of whether the Fed has acted too abruptly, especially with the potentially murky waters that lie ahead in 2022. Of slightly less importance is the latest consumption and income data in the US, projected to show another month of solid growth in personal income (+0.4%) and spending (+0.6%) in November. Finally, we would like to note that this is our last morning commentary of 2021 and thus we wish our readers an enjoyable and safe Christmas period, and look forward to a prosperous 2022.

Expected Ranges

  • GBP/USD: 1.3370 - 1.3455 ▲
  • GBP/EUR: 1.1805 - 1.1865 ▲
  • GBP/AUD: 1.8410 - 1.8590 ▼
  • EUR/USD: 1.1280 - 1.1365 ▲