It could be a volatile week for the pound, euro and dollar as central banks are due to hold their December monetary policy meetings.
The Federal Reserve will conclude its meeting on Wednesday, and we will hear from both the Bank of England and the European Central Bank on Thursday. After high expectations for an interest rate hike from the Bank of England, this is now thought to be less likely due to a more uncertain economic backdrop.
As well as news from the Bank of England, sterling could continue to react to any updates surrounding the Omicron variant. The pound has already weakened slightly against the dollar this morning due to the Prime Minister’s warning of a “tidal wave” of infections.
A new survey of small businesses in the UK has shown that a third are planning to cut their staff over the coming months due to the pandemic, supply chain shortages and high energy costs.
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GBP: All eyes on Bank of England meeting
After recovering slightly against the euro and the dollar at the end of last week, the pound is trading around the same levels against the euro this morning and has weakened slightly against the dollar.
However, there is an eventful week ahead, which could spell volatility for the pound. The Bank of England will host its latest monetary policy meeting on Thursday against an uncertain economic backdrop. Expectations for an interest rate hike this month were high initially, but the emergence of the Omicron variant and a re-introduction of some restrictions has reduced expectations for this.
Despite this, a surprise decision to raise the rate could be advantageous for the pound.
Sterling is likely to react to any further announcements about coronavirus and restrictions. Inflation rate figures will also be released on Wednesday.
GBP/USD chart over past year
EUR: ECB meeting on Thursday
Following a slight recovery on Friday, the euro has weakened slightly against the dollar this morning.
It’s also a busy week for the single currency, as the European Central Bank will hold its next monetary policy meeting. The ECB has already said that its quantitative easing programme will close around the end of March. However, officials could announce an extension of its Asset Purchase Programme. The markets will be listening for any news on this.
There will be a series of data for the eurozone on Thursday, including PMI figures.
USD: Fed expected to announce faster tapering
The dollar is slightly stronger against a basket of currencies this morning ahead of the Federal Reserve’s monetary policy meeting this week.
The Federal Reserve’s two-day meeting will conclude with a press conference on Wednesday. Officials are widely expected to announce speeding up the tapering of their bond buying programme, which could mean that interest rates will be hiked earlier than planned.
There will also be a series of data releases for the US today, including retail sales figures on Wednesday and PMI data on Thursday.