Daily Report 09/12/2021

Sterling was unable to make any headway in early Europe on Wednesday and gradually lost ground ahead of the New York open. Risk appetite dipped on renewed reservations over coronavirus developments although, significantly, the Pound failed to recover when risk conditions improved once again. Sterling was hampered by further difficulties for Prime Minister Johnson and the government. There were also media reports that the government will introduce fresh restrictions in order to curb spread of the Omicron variant which would further damage the outlook. Any further restrictions would also make it less likely that the Bank of England will raise interest rates at next week’s policy meeting and money markets continued to drift lower with the probability of an increase dipping to below 50% which sapped UK currency support. Sentiment remained fragile and the government confirmed that there would be a move to Plan B restrictions in England with a renewed directive to work from home if possible.

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The Euro drifted lower into Wednesday’s New York open with a retreat against the US currency, although there was choppy trading with fluctuations in risk appetite as markets continued to monitor global coronavirus developments. Caution ahead of forthcoming policy meetings also curbed aggressive position taking. ECB Vice President de Guindos stated that there was no evidence of second-round inflation effects, maintaining a dovish stance ahead of next week’s policy meeting, although Euro selling pressure was limited with the currency able to demonstrate some resilience.

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There were expectations that the Federal Reserve would take a hawkish stance at next week’s policy meeting and potentially sanction a faster rate of stimulus withdrawal by accelerating the rate of tapering of bond purchases. Markets will also be monitoring rhetoric surrounding interest rates within the statement. The dollar, however, was unable to make headway after the US open. US JOLTS data registered an increase in job openings to 11.03mn for October from a revised 10.6mn the previous month and well above consensus forecasts of 10.4mn with the data continuing to indicate a tight labour market, although there was a slight moderation in the quits rate.

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