New Omicron variant increasing global uncertainty

By Luke Dyson

The US Dollar continues to trade strongly versus both the Pound and the Euro as global markets await further analysis of the new omicron variant of coronavirus.

As we brace ourselves for the possibility of further lockdown restrictions and more jabs we can perhaps understand more about how FX markets react when they are facing increased uncertainty – we are all looking for further information and facts but can’t find them at the moment – which is why the rates appear to be almost suspended. GBP/EUR appears to be pivoting around 1.17 on the interbank, the USD in comparison sits at a 12 month high versus the Pound and an 18 month high versus the Euro.

The US dollar is undoubtedly benefitting from its ‘safe haven’ status as little reaction was seen to Friday’s disappointing Non-Farm Payrolls numbers – a cause for concern on the road to economic recovery for the United States. Its lowest reading in the past year saw only 210,000 jobs created in the States versus expectations of around 550,000. This data was collated before the knowledge of the omicron variant and suggests that the US recovery may in fact be off track. Undoubtedly however, inflation in the US remains high and the Central bank have hinted at interest rate rises and a fast tapering of financial stimulus in the months ahead which does give the USD a boost.

In comparison the ECB are much more dovish in their outlook on their financial aid to the market and have stated that inflation pressures appear to be temporary and are impacted by both the pandemic and global supply chain issues. The Bank of England are thought to favour this view and therefore speculation of an interest rate rise on Dec 16th in the UK could be off the mark, a warning for any one waiting for this event.

Further travel restrictions in the UK have come in to play which our readers need to be aware of. As of 4am Tuesday all travellers to the UK will need to present a negative covid test to gain access to the country. This is on top of the requirement for arrivals to quarantine until receiving a negative PCR result for tests taken on day 2 of your arrival home.

After a period of uncertainty the next move in exchange rates can often be exaggerated so its more important now more than ever to keep in touch with us and really think about how much you are willing to risk a move in the wrong direction while hoping for a move the right way. Your account manager will be more than happy to discuss further.