Sterling Tries To Recoup Losses

GBP

The pound brushed off fresh concerns surrounding the new Omicron variant on Monday and recovered slightly across the board. The gains are however modest relative to the hefty selling seen on Friday as investors await further news in regards to this new variant and the dangers it poses. If the Omicron variant proves a false alarm and isn’t as deadly as first thought then we could see risk appetite being restored quickly.

Prime Minster Boris Johnson brought in new measures on Saturday which will come in force on Tuesday, while UK-wide changes on international travel guidelines were announced last Thursday. Additional restrictions are seen as a potential headwind to economic growth and has now meant the market has lowered the expectation of the Bank of England rate hike in December. Furthermore a new wave of Covid will also impact economic growth as consumer and business confidence will suffer as a result.

Much of sterling’s weakness over the past few days has been due to the reduced possibility of a rate hike in December as investors bet the Bank of England simply won’t hike in an environment of deteriorating sentiment. However February rate hike still remains likely but this is dependent on data and fresh waves of Covid.

Key announcements

10:00 – EUR – CPI flash estimate Y/Y – Forecast at 4.5% from previous 4.1%
10:30 – EUR – Core CPI flash estimate Y/Y – Forecast at 2.3% from previous 2%
3:00 – USD – FED chair Powell testifies