The pound fell sharply yesterday after the UK inflation rate jumped from 7% to 9% – its highest level since 1982.
Sterling is holding in a narrow range so far this morning, with GBP/EUR buoyed at €1.1945 and GBP/USD stable at $1.3497. GBP/CAD is rangebound at C$1.7193, while GBP/AUD and GBP/NZD hold steady at AU$1.8714 and NZ$1.9865, respectively.
Looking ahead, will currency markets remain sensitive to Omicron developments at the start of 2022?
What’s been happening?The pound raced higher through last week’s truncated session, with GBP investors seizing on the announcement that the UK government would not be imposing any additional Covid restrictions before the New Year.
The decision was cheered by traders who feared that any further restrictions would have further undermined UK economic growth at the end of 2021.
At the same time, the US dollar struggled last week as demand for the safe-haven currency fell in response to fading Omicron fears. Coupled with a drop in US Treasury yields, this ensured the ‘greenback’ ended 2021 on a sour note.
While the US dollar’s woes helped bolster the appeal of the euro due to the negative correlation between the pairing, the imposing of new Covid restrictions in many parts of the Eurozone capped the euro’s upside potential last week.
A key focus for markets at the start of 2022 will be whether or not the UK governments decides to impose stricter Covid restrictions in England amidst the ongoing surge in daily infections.
What’s coming up?
This could see the pound maintain a positive trajectory as the government remains reluctant to tighten measures.
In the meantime, the publication of Germany’s latest retail sales figures could bolster the euro today, after reporting sales growth unexpectedly accelerated in November.
For USD investors the spotlight will be on the latest ISM manufacturing PMI. While US factory sector growth is forecast to have slowed last month, the index is expected to report activity remained robust, which may offer some support to the US dollar this afternoon.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)