✈️ Download our latest Travel Playbook here. Unravelling the complexities of the travel industry in a globalised world. 🗺️

Safe-haven currencies retreat as omicron fears subside

( 3 min )

  • Go back to blog home
  • All posts
    All posts|Currency Updates
    All posts|Currency Updates|International Trade
    All posts|International Trade
    Blog
    Central Bank Meetings
    Charities & NGOs
    Currency Updates
    Currency Updates|In The News
    Ecommerce
    Fraud
    FX 101
    In The News
    International Trade
    Podcast
    Press Release
    Product Update
    Security & Fraud
    Special FX Reports
    Special Report
    Weekly Market Update
  • Latest

7 December 2021

Written by
Matthew Ryan

Matthew Ryan is Ebury’s Global Head of Market Strategy, based in London, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

The major currencies were largely rangebound on Monday, although we have seen a bit of a sell-off in the safe-havens, as all signs so far suggest that the new omicron variant of COVID-19 only leads to mild symptoms.

N
ews on the impact of the highly mutated strain on public health is likely to be the key driver for currencies during the rest of the year. Not only will it dictate whether additional virus restrictions will need to be imposed by governments, but it will also have a big say on central bank decision making. Reports out of South Africa, where the variant was first detected, suggest that cases so far have only led to mild illness, and that the spread of the strain has not led to an increase in hospitalisations. If there was really something for investors to start worrying about, we would no doubt be seeing headlines on a wave of omicron hospitalisations and deaths, but that has simply not been the case as of yet.

dollar

Communications from central bankers on the omicron news have been slightly mixed, although most appear to see the economic risk as minimal. The Reserve Bank of Australia kept policy unchanged overnight, although said that the new variant was unlikely to derail the recovery. Comments from Fed chair Powell last week suggested that the bank would be moving ahead with plans to speed up tapering at its FOMC meeting next Wednesday. While Friday’s US payrolls report showed a big miss in the headline job creation number, the overall picture is an encouraging one, and we don’t expect it to derail the Fed’s plans. This Friday’s US inflation print is expected to show price growth increased again in November, and that may all but cement plans for further tightening next week.

Meanwhile, sterling managed to eke out gains against its peers on Monday, and is currently trading as the third best performer in the G10 in the past week, behind the Canadian dollar and US dollar. The general feeling in the market is that the omicron news makes a December Bank of England interest rate hike far less likely. Notorious hawk Michael Saunders said last week that he would need more information on the new variant before deciding whether to vote in favour of a rate hike next week. Fellow MPC member Broadbent reignited hopes of a hike this year to some extent on Monday, saying that UK inflation was likely to comfortably exceed 5% in April next year. While his comments have provided a little bit of upside support for the pound,futures markets are now only pricing in a 50/50 chance of a 15 basis point rate increase from the BoE this month, having fully priced one in before the omicron news.

 

Interested to know more?

📩 Click here to receive the latest market updates
👉 Our LinkedIn page for the latest news
✍️ Our Blog page for other FX market updates

SHARE