Currency Note

Pound settles lower as Omicron effect spreads globally

By Alex Bennett December 21st, 2021

After the brief flurry of support after the interest rate rise last week the pound has settled back to the same position as this time last week against the euro and US dollar.

Both GBP/EUR and GBP/USD are still roughly 2% down on their position before the Omicron variant arrived.

The British government – after a long cabinet meeting – announced yesterday that further lockdown measures remain a possibility for the future, but would not be imposed for now. The Prime Minister urged the public to “exercise caution” in their work and social lives. The Queen has cancelled her own plans for Christmas and will remain in one of her other homes instead of traveling to Sandringham.

Indeed, the evidence from the high streets, cinemas and hospitality sector is that the public appears to be toning down pre-Christmas activity of their own accord. High street footfall was down 25% on Sunday compared to the same day in 2019.

The economics summit at Davos has been postponed for a second year as cases continue to rise globally, including the first Omicron death in the USA, an unvaccinated man in Texas.

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GBP: Sterling’s post-rate-rise strength dissipates

The pound has fallen marginally but across the board following warnings of further Covid restrictions. It’s down between 0.1 and 0.35% compared to this time yesterday against all nine other major currencies except for NOK and NZD.

Yesterday’s data releases included the CBI’s order book balance, which slipped slightly to +24 in December, but that was from a record high the previous month.

This morning we’ve had Public Sector Net Borrowing for November, which showed a bigger than expected level of borrowing last month at £-17.4bn.

Later today we’ll have CBI Distributive Trades. Last month showed a first-ever fall in online sales and rise in high street retail sales. This is unlikely to be repeated for December.

GBP/USD past year

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EUR: Euro strengthens on lead into Christmas

The euro strengthened slightly against most currencies yesterday and remains slightly ahead of GBP and USD on the week.

This morning the report from GfK on Consumer Confidence for Germany showed a significant slip to -6.8, against an expectation of -2.7 and way down on last month’s -1.8. It’s being blamed on the rise on Covid cases and inflation.

At 4pm today we’ll get Consumer Confidence across the eurozone. Overall, it’s a quiet week for data and there is virtually nothing next week.

USD: Dollar steady as Omicron spreads in USA

While the dollar has strengthened across the week, it has slipped in the past day or two as Omicron spreads in the country and the first death has been recorded.

While negative for business – and the public, of course – rising Covid cases can support the dollar as a currency that investors buy in times of crisis. This does not appear to be happening to any great extent yet, however.

Next week, while the UK and EU data dries up, it continues to flow in the USA, with property prices feeding into the inflation narrative.

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