- Bluestone Currency
A Nervous End to November
Sterling slipped again yesterday against both the dollar and the euro as markets continued to fret over the impact of the new Covid variant. Sterling will continue to struggle whilst the potential impact of the Omicron looks as if it may delay December's anticipated rate rise from the Bank of England. Sterling had been underpinned by the prospect of an end to pandemic induced stimulus and interest rates rising to combat inflation.
With no economic data today, sterling is at the mercy of its peers and further developments concerning Covid. As usual, on the last day of the month, there may be some volatility around the London Currency fixing at 16.00 GMT as institutions balance their portfolios.
German inflation reported a much sharper rise than expected yesterday, and when combined with a drop in Eurozone Economic Sentiment, they present worrying signs for the incoming administration. The inflation problem is not confined to Germany, as evidenced by the Italian Producer Price Index release, which also jumped sharply last month.
During the London trading session, the euro eased slightly against the dollar after Isabel Schnabel from the European Central Bank continued with the rhetoric that inflation is transitory when she said during a TV interview that "November will prove to be the peak of inflation". This morning Eurostat will report the bloc's Consumer Price Index and Germany's unemployment level
The dollar started to gain ground once US traders re-entered the market yesterday afternoon. With New York recommending that masks be worn indoors, it became apparent that the US is as concerned as elsewhere about the Omicron variant, which unsettled risk sentiment and boosted the dollar's appeal. Before the variant's arrival, the dollar, alongside sterling, had been supported by the prospect of the Federal Reserve tightening policy.
This evening after the European markets have closed, the first hints on how far the Federal Reserve may veer from its current policy will come when newly reappointed Chairmen Powell testifies to Congress.