The pound has made a habit of falling to fresh one-year lows against the dollar in recent weeks – continuing the trend on Thursday when it slipped to new lows. News that tougher new restrictions are being imposed in the UK to control the rapid spread of the Omicron coronavirus variant forced the UK currency into reverse. The emergence of the Omicron variant has cast a cloud over the UK economy, setting off alarm bells for businesses. President of the British Chambers of Commerce, Baroness Ruby McGregor-Smith warned: “Many businesses have only just begun to get back on their feet and this move will inevitably damage business confidence. “Critically, firms need to know that the government will support them through this next period.” The UK economy expanded by a weaker-than-expected 0.1% in October. It remains 0.5% smaller than it was in February 2020 – the month before the first Covid-19 lockdown restrictions were put in place – figures from the Office for National Statistics showed on this morning.
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This week’s calendar in Europe is thin, which has the markets looking ahead to next week’s ECB policy meeting. There are no expectations for any changes in monetary policy at the meeting. The eurozone has not been immune to higher inflation. Although weaker than what the U.S. and U.K. have been experiencing, some ECB members have expressed unease about rising inflation. Another key issue on the plate of bank policy-makers is QE. The ECB’s 1.85 trillion euro Pandemic Emergency Purchase Program (PEPP) has been in place since March 2020. Although the eurozone continues to struggle with COVID, the economy is showing improvement and the bank plans to wind up PEPP in March 2022.
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ECB’s President Lagarge Speech
The Dollar’s run of strength that saw it dominate global FX markets in 2021 is not set to end soon, according to one of the largest lenders in the United States. Wells Fargo say they anticiapte further Dollar strength in 2022 and in 2023, suggesting a long cyclical upturn for the currency is underway. “With the Fed having started the tapering of its bond purchases and expected to raise interest rates beginning in the second half of next year, given our revised outlook for Federal Reserve monetary policy, our outlook for the U.S. dollar has also evolved,” says Nick Bennenbroek, International Economist at Wells Fargo. “We now expect an extended period of U.S. dollar strength and see broad-based greenback strength through late 2023, compared to our previous forecast that U.S. dollar strength would only last into the early part of 2022,” he says.
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13:30 Consumer Price Index Forecast 0.5% Previous 0.6%
15:00 Michigan Consumer Sentiment Forecast 67.1 Previous 67.4