Sterling remained under pressure in early Europe on Friday amid the general slide in risk appetite as markets fretted over risks posed by the new coronavirus variant. The currency posted fresh 2021 lows against the dollar. Bank of England chief economist Pill stated that the labour market remains strong and there is no evidence of a significant increase in unemployment. He added that the ground had been prepared for policy action and that interest rates will need to rise gradually over the coming months. He also noted that rates can continue to increase if data strengthens and inflation is forecast to remain persistently above target. The comments suggested that he would back a small rate increase in the near term. The rhetoric could have provided net Sterling support, but risk conditions continued to dominate during the day, especially with a high degree of uncertainty over omicron. UK government announced some renewed restrictions, although with a clear attempt to avoid economic disruption. There were calmer conditions on Monday with markets waiting for Omicron developments and any hints from the Bank of England on the December meeting.
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Euro-zone M3 money supply increased 7.7% in the year to October from 7.5% previously with private loans increasing 4.1% over the year. Economic data had little impact in Europe trading with risk conditions dominating market action amid the focus on the Omicron variant. The Euro posted another round of gains ahead of Friday’s New York open with a further closing of short positions as fresh coronavirus fears undermined confidence in carry trades. Overall risk conditions continued to dominate later in the day, especially with trading volumes curbed in US markets. There were further concerns that the new variant would cause major damage to the global economy. The lack of liquidity also had an important in increasing volatility with one-sided trading. Euro short covering continued pushed to short term highs against the US currency while commodity currencies declined sharply.
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13.00 German Harmonised Index of Consumer Prices (YoY) (Nov) Exp. 5.4% Prev. 4.6%
Risk appetite continued to deteriorate rapidly during Friday with sharp losses across equities and commodities as markets fretted over the risks posed by a new coronavirus variant. There was a sharp retreat in US equity futures and US yields also continued to decline with the 10-year sliding to lows around 1.50%. Markets were concerned that the new Omicron variant would force the Federal Reserve to change tack and curb monetary tightening. In particular, there were notable doubts whether the Fed would decide to reduce bond purchases at a faster pace.
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20.05 Jerome Powell Speech