Winter is approaching, and so will rate increases. The Fed indicated it is prepared to commence tapering. A speedier decrease in bond purchases means rising borrowing costs, maybe in May.
The Dollar was boosted by Powell’s hawkish stance, mirrored by his colleagues.
Even though the US economy added just 210,000 jobs in November, there were some good signs. The jobless rate declined to 4.2%, and participation increased. The Dollar fell slightly before recovering some ground.
A novel COVID-19 variant, Omicron, has been discovered in South Africa. The post-panic market news was less upsetting. Pfizer executives were calm and confident in dealing with Omicron, whereas Moderna executives were nervous.
Omicron is more infectious than prior forms, however, mortality and vaccination resistance remain unknown. The markets seemed to react to any piece of news, good or bad.
The Dollar’s reaction to the virus announcement was more complicated. As against commodity currencies, the Dollar benefitted from safe-haven flows but fell against heavyweights due to declining yields. Overall, the Dollar rose, but this was due to the Fed, not the virus.
The UK government’s new limits were modest compared to Austria’s total lockdown. Prime Minister Boris Johnson has many controversies. Brexit was also relatively calm, saving the Pound from more losses.
Brexit, The Virus And The GDP
The government may be obliged to intervene if pressure on British hospitals escalates owing to decreasing immunity and the continued expansion of the Delta strain.
New limitations may weaken Sterling. However, Britain’s increased push to give everyone booster doses may help keep the illness under control. Parameter reliability in the virus might benefit the Pound.
The lack of a settlement to the Northern Irish protocol debate means it might potentially come back to bite the Pound. Anything senior British or European diplomats say might hurt the Pound.
A big impact might be triggered by Article 16 comments, which is a unilateral stoppage of the Brexit accord.
The October GDP results stand out on the financial calendar. After a 0.6% September increase, the UK’s development rate likely slowed in October. Supply-chain difficulties and a reopening delay are at play.
Another notable event is a speech by Ben Broadbent at the Bank of England’s penultimate press conference before the rate announcement the following week.
It is expected that the “Old Lady” will boost rates from 0.10% to 0.25% on December 16. Sterling may suffer if Broadbent questions the decision.
Events In The US: Inflation And Omicron
The Fed’s “meltdown period” has begun, yet speculation continues. November’s inflation data may sway the Fed’s decision to commence tapering and determine its magnitude.
The Fed is currently reducing monthly purchases by $15 billion. Will it hit $20 billion, or perhaps $25 billion? CPI statistics may assist in deciding the outcome, which influences the schedule of the rate rise.
The calendar shows moderation — headline CPI drops from 6.2 to 5.8% and Core CPI from 4.6 to 4.3%. But there are grounds for optimism.
The benefit of lower oil prices and lower transportation costs is likely to be felt in December. Consumption by Americans increases pricing pressure.
The publication of Unit Labor Costs on Monday is also vital as a measure of rising wages, which influences core pricing. The University of Michigan’s initial Consumer Sentiment Index for December is also notable.
A recovery is expected after a decade-low of 67.4 points in November. But it hasn’t forecast demand in recent months, so it’s less reliable.
Several Omicron instances in the US are predicted this week, as are assessments of vaccination resistance and fatality. The two-week time period required by experts to better understand the strains is ending, and early findings are forthcoming.
If current Omicron vaccination strategies fail, markets may suffer and the Dollar may surge. Evidence that immunizations are still effective against this type might weaken the dollar. Investors will likely hunt for vaccinations that cope with extreme disease and mortality.
Analysis of the GBP/USD
GBP/USD CHART Source: Tradingview.com
The Pound/Dollar is falling, with lower lows and highs. On the daily chart, it briefly fell below a downtrend support line.
Bulls may rest easy, knowing they are above the cliff. The pair is trading below the 50-day, 100-day, and 200-day Simple Moving Averages (SMAs). Also, the RSI is still over 30, indicating that the market is not oversold.
The 1.3260 level held the GBP/USD higher in early December. Then 1.32, the late-November trough. 1.3130 and 1.30 follow.
