Currency Note

Markets monitor effects of Omicron variant

By alexbennett November 29th, 2021

Matthew Troke / Shutterstock.com

After falling sharply on Friday following the news of a new, more mutated, variant of Covid-19, the pound has regained some strength against the euro but is still struggling against the dollar.

As of tomorrow, face masks will be mandatory in shops and on public transport in England, while UK arrivals will have to take a PCR test. The government is also due to give an update today on an expansion of the Covid booster scheme. Markets will now likely be questioning the impacts of this new variant on the Bank of England’s monetary policy outlook.

The euro is weaker this morning after climbing almost 1% against the pound and dollar on Friday. Many countries have tightened their Covid-19 restrictions as the continent battles to contain the spread of the Omicron variant after 13 people arriving in the Netherlands on flights from South Africa tested positive for the new variant.

The dollar is stronger this morning and markets will now be waiting for a speech by Federal Reserve Chair Jerome Powell later today.

Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Trader on 020 7898 0500 to get started.

GBP: Omicron variant is centre of attention

The pound fell sharply at the end of last week against a handful of currencies following reports of a new, and more mutated, variant of Covid-19. This morning, it has strengthened against the euro but is still struggling against the dollar.

The government has reintroduced mandatory mask-wearing in shops and on public transport, and UK arrivals will have to take a PCR test from Tuesday, to curb the spread of the new variant, known as Omicron.

If further measures are introduced, it could have an impact on the Bank of England’s monetary policy outlook, something that could threaten the pound’s strength.

Speaking on Friday, BoE chief economist Huw Pill reiterated the message we heard from BoE official Silvana Tenreyro that interest rates will need to rise in the near future. Again, no specifics were given as to when this might happen, but Pill added that “the ground is prepared for policy action”.

GBP/USD chart over past year

From To

 

EUR: German inflation eyed

The euro rebounded against the pound and the dollar at the end of last week, climbing almost 1% on Friday. This morning it has weakened slightly, mainly due to greenback strength.

The Netherlands has introduced tighter Covid-19 restrictions after 13 people arriving from South Africa tested positive for the new variant.

It’s a busy week for data in the eurozone with German inflation, eurozone inflation, eurozone consumer confidence, Markit PMI and several speeches from European Central Bank members.

USD: Markets await Powell speech

The dollar lost some strength at the end of last week as markets expressed concerns about the impacts of the new Covid-19 variant on the Federal Reserve’s tapering plans. It is stronger this morning.

No cases of the new Omicron variant have been detected in the US yet, but future cases could hinder the country’s economic recovery. The CME Group’s FedWatch Tool has revealed that some investors are already sceptical of a Fed rate hike by June 2022.

Federal Reserve Chair Jerome Powell will speak later today, and markets will be listening for any comments around the timing of the rate hike.

For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 7898 0500 or your Private Client trader on 020 7898 0541.