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20th December - Weekly FX Update

Top Currency Pairs Monday 20th December 10:00 UTC GBP/USD: 1.31802 (Last week: 1.32250) EUR/USD: 1.12598 (Last week: 1.12741) GBP/EUR: 1.17056 (Last week: 1.17295)

Market News

Pound Sterling On Thursday, the Bank of England unexpectedly moved interest rates to 0.25%, saying "we have to act". The majority of analysts, traders and economists expected the central bank to keep rates at 0.1% after the recent surge in Covid cases across the UK, which showed a 72% jump from Sunday to Sunday last week. In Ireland especially, officials say around 52% of all new cases are the Omicron variant. The Pound spiked quickly when the BoE shocked markets with their interest rate hike, however the gains were short-lived as lockdown fears have grown in the UK, with the GBP/USD exchange rate in particular falling to yearly lows.

Euro Hans-Werner Sinn, the former IFO president, has claimed Christine Lagarde is "living in a different movie", mentioning the "flawed" ECB monetary policy whilst increasing inflation pressures the German and European economies. This came after Lagarde avoided taking the same path as the US and UK central banks, voting to leave interest rates unchanged whilst asserting it will be "very unlikely" that there will be any rate rises at all next year.

U.S. Dollar On Wednesday, the US Federal Reserve announced that it would end pandemic-era bond purchases in March, leaving the chance for several interest rate increases next year. The Pound gained considerably on Thursday after the BoE shocked markets with their own interest rate hike, but with Omicron in focus, that is far from reality now. The GBP/USD rate fell to a yearly low of 1.31802, losing all of the momentum it gained last week. Omicron developments almost benefit the Dollar with its safe-haven status, as investors retreat from risker currencies. A clutch of economic indicators this week will be released in the US, including GDP which could shed some light on the direction of US monetary policy in 2022.

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