Sterling was able to resist renewed selling pressure at Monday’s European open. There were important reservations over the Omicron variant, especially with Health Secretary Javid warning that the variant was spreading at an alarming rate, particularly in London. The latest evidence also suggested that there had been a sharp drop in public transport use as government guidance again called on employees to work at home where possible. The main focus at this stage was on accelerating the vaccine booster programme. In this context, there were hopes that a strong programme could give the UK a relative advantage in global terms, but there were still important concerns over the implications of a surge in infections. Bank of England Governor Bailey stated that he expected that the Omicron variant would not cause market turmoil with no direct comments on monetary policy ahead of Thursday’s meeting. Overall, the UK currency settled against the dollar after failing to hold higher while the Euro posted a limited net advance as global risk appetite remained generally fragile. The latest UK labour-market report recorded a larger than expected decline in jobless claims with unemployment declining to 4.2% from 4.3% while headline average earnings slowed to 4.9% from 5.8%, but above expectations of 4.6%. Reaction was muted despite firm data.
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7.00 Claimant Count Change (Nov) Act. -49.8K Exp. -25.2K Prev. -14.9K
7.00 ILO Unemployment Rate Act. 4.2% Exp. 4.2% Prev. 4.3%
The Euro moved lower ahead of Monday’s New York open with the single currency hampered by concerns over geo-political tensions with a particular focus on the Russia-Ukraine tensions. There were reservations over the risks of an escalation in tensions and there will also be the threat of a disruption to energy supplies which would also have an adverse impact on the economy, especially with existing concerns over supplies. There were also further concerns over the potential for a rapid spread of the Omicron variant within the Euro-zone which would risk further damage to the economic outlook.
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There was also position adjustment ahead of Wednesday’s Federal Reserve policy statement. There are expectations that the central bank will move towards a faster pace of slowing asset purchases. There are also predictions that the latest economic projections will see an increase in interest rate forecasts by individual Fed members. The dollar was, however, hampered to some extent by expectations that a hawkish policy stance had already been priced in. US Treasuries strengthened further in early New York on Monday with the 10-year yield dipping below 1.45%. Wall Street equities dipped after the US open, but the US currency was broadly resilient.
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