Pound Jumps amid Omicron Optimism, US Dollar Stumbles as Risk-On Mood Prevails

The Pound was catapulted higher this week after the UK government signalled that it could avoid imposing any additional Covid restrictions. 

At the same time, the US Dollar came under some notable selling pressure as a broadly positive market mood sapped the appeal of the safe-haven currency. 

Pound Soars as UK Government Defers Restrictions 

GBP/EUR – Up once cent on the week’s opening levels 

GBP/USD – Up two cents on the week’s opening levels 

The Pound enjoyed strong support this week, initially strengthening as the UK government confirmed no new Covid restrictions would be imposed before Christmas.  

These gains then accelerated in the latter half of the week following a UK report which suggested those infected with Omicron are less at risk of hospitalisation than previous strains, which stoked hopes England could also avoid any post-Christmas restrictions. 

Barring the announce of any restrictions between now and the new year, the focus for GBP investors at the start of 2022 will likely be on Brexit, as the implementation of new customs regulations could further disrupt trade between the UK and EU. 

Euro Stumbles as Europe Tightens Restrictions 

EUR/GBP – Unchanged on the week’s opening levels 

EUR/USD – Up one cent on the week’s opening levels 

The Euro struggled to attract much support this week, with the currency initially stumbling in response to a larger-than-expected drop in Eurozone consumer confidence.  

The subsequent announcement of new Covid restrictions by most European countries then further undermined the appeal of the single currency. 

In the absence of any notable data during the post-Christmas lull next week we will look towards the first week of January, where the main catalyst of movement in the Euro is likely to be the publication of the Eurozone’s latest consumer price index. Will another surge in inflation buoy the single currency? 

US Dollar Slides Undermined by Upbeat Mood 

USD/GBP – Down one pence on the week’s opening levels  

USD/EUR – Unchanged on the week’s opening levels  

A clear US Dollar selling bias prevailed this week as the appeal of the safe-haven currency was undermined by an improving market mood and falling US Treasury yields.  

While some stronger-than-expected US data releases helped to temper the US Dollars losses in the latter half of the week, it was unable to fully reverse this trend. 

Looking ahead to the start of 2022, the publication of the latest US payroll figures will undoubtedly be the focus for USD investors, with the US Dollar potentially rallying if employment growth jumped in December as forecast. 

Australian Dollar Rallies in Bullish Trade 

AUD/GBP – Up one pence on the week’s opening levels 

AUD/USD – Up one cent on the week’s opening levels 

The Australian Dollar initially stumbled this week as a cautious mood and dovish minutes from the Reserve Bank of Australia’s (RBA) December meeting weighed on the currency.  

However, the risk sensitive ‘Aussie’ then roared higher in the latter half of the session as Omicron optimism triggered a major relief rally. 

The publication of Australia’s latest PMIs may offer direction to AUD exchange rates at the start of next year, with a robust reading from the services sector potentially buoying the Australian Dollar. 

Key Data  

Jan 3 AUD Manufacturing PMI (Dec) 

Jan 4 GBP Manufacturing PMI (Dec)  

Jan 4 USD ISM Manufacturing PMI (Dec)  

Jan 5 AUD Services PMI (Dec) 

Jan 5 USD FOMC Minutes 

Jan 6 EUR German Factory Orders (Nov) 

Jan 6 GBP Services PMI (Dec)  

Jan 6 EUR German Inflation Rate (Dec)  

Jan 7 EUR Inflation Rate (Dec) 

Jan 7 USD Non-Farm Payrolls (Dec)