This week, the Federal Reserve Chairman Powell unexpectedly showed an "eagle" posture in his testimony in Congress, saying that he would discuss the early end of bond purchases at this month's meeting and should be prepared for high inflation. Other Fed officials have also spoken out, suggesting support for an earlier end to quantitative easing. Market expectations for Fed rate hikes increased accordingly, and the dollar was also boosted.
But after the Omicron variant strain was found in South Africa, more than 20 countries, including the United States, were captured. Many countries tightened border controls to respond. Investors were worried that the restoration of travel bans and blockade measures might kill the fledgling economic recovery. The market had a tendency to hedge, which restricted the dollar's rise and closed up 0.15% to 95.544 in the end.
The euro zone's inflation rate hit a record high in November and far exceeds its target, but the ECB remains indifferent and still believes that the surge in inflation is temporary and may have reached its peak. Central Bank decision makers are also considering postponing their decision to buy future bonds, and the euro is under pressure, with the exchange rate against the US dollar closing down 0.14% to 1.1306.
pound closed down against the US dollar for the second consecutive week, down 0.87%, and set a new low since late December last year to 1.3194. The Omicron new crown variant caused the Bank of England to see a decline in rate hikes in this month. As the Fed could accelerate tightening of monetary policy, a strong dollar could be the driver of the pound’s move ahead of the Bank of England’s interest rate decision on December 16.
European Central Bank dovish
Euro vs. USD exchange rate closed down 0.14% to 1.1306 in the final session. ECB President Lagarde said on Friday that inflation in the euro zone is still considered temporary and may have reached its peak and will soon start to decline, and the downward momentum will continue until next year. "I think inflation looks like a hump, and the hump will eventually fall. We firmly believe that inflation will fall in 2022."
Lagarde commented, after the euro zone's November inflation hit a record high of 4.9%, more than double the ECB's 2% target, while multiple indicators show that it will not fall back below the target until the end of 2022 at the earliest.
ECB Executive Committee Member Isabel Schnabel previously said that the ECB believes inflation peaked in November, which means it is too early to raise interest rates, because price increases may gradually slow down next year.
Other data show that the euro zone's economic confidence fell in November, consistent with market expectations, with consumer optimism lowered and cuts their inflation expectations, even as manufacturers' sales price forecasts reached an all-time high.
public health agency said the Omicron variant may account for more than half of all new crown infections in Europe within a few months. Worries about the new crown epidemic and inflation data are weighing on decision makers. The recurrence of the epidemic has strengthened the position of dovish European Central Bank people. "So far, the destructiveness of several consecutive waves of the epidemic has proved to be less and less serious, and this time it should not cause much change to the economic outlook."
But ECB hawks warned not to keep monetary policy too loose for too long. Deputy Governor De Kindos acknowledged the existence of “high uncertainty” and called for the preservation of all policy options.
High inflation may complicate the important December 16 policy meeting of the European Central Bank, when decision-making officials are almost sure to terminate the 1.85 trillion euro emergency stimulus plan, but will also consider increasing other aid measures to fill the gap. The growing policy division between the ECB and the Fed could cause the euro to fall sharply against the dollar.
Ruisui strategist Peter McCallum now believes that the plan is more likely to be extended beyond the March deadline."They (ECB) said that the situation in Europe will not change the outcome of PEPP, but if new variants need to be dealt with with new vaccines, it will definitely change the overall situation," McCallum said. Leuchtmann在一份客户报告中写道，由于欧洲央行的鸽派态度，欧元最初受益于Omicron的变体，“如果Omicron导致全球范围内的封锁和经济活动再次减少，那么所有加息预期都将落空，然后它们将很快再次被定价。”
丰业银行预计，鉴于近期经济和利率基本面疲弱，欧元将向1.10/11区间走软，不过疫情的不确定性应会使欧元暂时维持在1.12-1.14区间内。
pound hit a new low since late December last year
pound closed down against the US dollar for the second consecutive week, a drop of 0.87%, and set a new low since late December last year to 1.3194. As the Fed could accelerate tightening of monetary policy, a strong dollar could be the driver of the pound’s move ahead of the Bank of England’s interest rate decision on December 16.
British Health Secretary Sajid Javid said that the two Omicron-related cases found in the UK were related to traveling to southern Africa. The UK government has announced some measures, including stricter testing for people entering the UK and requiring masks to be worn on certain occasions. Johnson proposed measures include stricter testing for people entering the UK, but there are no restrictions on social activities other than requiring masks on certain occasions.
UK companies are working to find the employees they need and expect higher inflation rates in the coming year, with the Omicron variant likely increasing inflation pressures. The UK inflation rate has reached a 10-year high and the economy has recovered sluggishly, and the Bank of England is considering whether to raise interest rates this month.
Bank of England Commissioner Sanders said on Friday that the Omicron novel coronavirus variant was a key consideration in December's decision-making, and it is favorable for the Bank of England to wait for data on the variant. The money market therefore lowered its Bank of England's rate hike expectations this month to less than 7 basis points.
Bank of England Governor Bailey said Wednesday when asked how to evaluate news about the Omicron novel coronavirus variant that the impact of the coronavirus pandemic has weakened since the beginning of the pandemic, but is still very large. Inflationary pressures brought about by supply chain difficulties, and increased demand for consumer goods rather than services during the pandemic.
The survey released by the British Federation of Industry (CBI) shows that its quarterly survey of the service industry shows that the cost of commercial and consumer service companies has grown at the fastest rate since the survey began in 1998. The survey shows that the Bank of England may have reason to raise interest rates soon.
UBS believes that the British government is eager to expand vaccine vaccination to fight the Omicron variant, and the pound is expected to find support. "However, if the global situation worsens lead to further adjustments in global stock markets, this relative advantage will likely be flooded," said another analyst at
. Some media reports that the United States will postpone trade negotiations with the UK due to concerns about the Northern Ireland protocol after Brexit, which may add more uncertainty to the pound.
yen safe-haven status has increased
USD closed down 0.34% against the yen to 112.772, hitting a new low since October 11 intraday to 112.52. The trend of the US dollar against the yen will depend on how the current market panic development about the Omicron variant virus. All of these are possible as new variants bring uncertainty and drugmakers are scrambling to improve the effectiveness of vaccines.
瑞穗银行分析师Neil Jones预测：“在这场疫情的大部分时间里，美元被认为是汇市的首选’避险’货币。现在不是了。对于2022年，我们认为日元将成为对冲风险的最有效指标。”
日本首相岸田文雄周一表示，随着新发现的Omicron新冠病毒变体在全球蔓延，日本将考虑进一步收紧边境管控。 Highlighting the lingering impact of global supply chain disruptions.
Japan's retail sales in October showed growth for the first time in three months, but the growth rate was lower than expected, and the fragile economic recovery still faced continued pressure.To boost Japan's tepid economic recovery, the government announced a record $490 billion economic stimulus plan earlier this month.
When asked about concerns surrounding the global spread of the Omicron variant virus pushing up the yen, Japanese Finance Minister Suzuki Shunichi said that the stability of exchange rate is important and he is closely monitoring the foreign exchange market and its impact on the Japanese economy.
Commodity currency fell sharply
USD against the Canadian dollar for the sixth consecutive week, rising 0.39% to 1.2834 in the end, hitting a new high since September 20 to 1.2845 in the session; the Australian dollar closed down 1.70% to 0.7004 against the USD, and the New York dollar closed down 0.96% to 0.6751 against the USD, both hitting new lows since early November 2020, to 0.6991 and 0.6739 respectively. The Omicron variant caused further oil prices to fall, driving commodity to fall, dragging down commodity currency. Although Canada, Australia and New Zealand, the economic fundamentals of remain strong overall. High energy prices will help the country's major oil-producing regions, Alberta, cut its budget deficit for 2021/22 from a forecast of CAD 7.8 billion (US$4.5 billion) in August to CAD 5.8 billion (US$4.5 billion). Rising energy prices also prompted Saskatchewan to lower its budget deficit forecast a day before.
Canadian Finance Minister Travis Toews said in a statement that the more optimistic forecast was due to “improved jobs, solid consumer spending, stronger-than-expected growth in residential construction and activity and global energy demand – driving higher prices for oil and gas”.
official data is realistic, strong exports and government stimulus spending in the third quarter boosted economic output, and Australia's third quarter GDP was better than expected. But the market evaluates the severity of the impact of the Omicron coronavirus variant on the global economy.
RBA Chairman Lowe has said that he will not make a decision on reducing stimulus before the February meeting. Most market participants have already expected the central bank to halve the scale of bond purchases to A$2 billion and end the bond purchases around the middle of next year.
Nomura economist Andrew Ticehurst said: "We expect the RBA to announce next week that it will reduce its bond purchases to $2 billion per week from February and may end QE in May. We also predict that the RBA will raise interest rates for the first time in November 2022, but again show that the risk of an early rate hike in August is high and is rising."
Two tourists who arrived in Sydney from southern Africa were tested positive for the Omicron variant on Sunday, and the official orders banned entry of non-citizens who have visited nine southern Africa countries and required Australian citizens returning there to undergo 14-day supervision and quarantine. "If Omicron spreads rapidly in Australia, it is inevitable to postpone further easing restrictions and/or taking additional measures. Until the situation is clear, the market will be a little nervous and the risks will be high. In fact, based on the experience of the Delta variant, we expect policy makers to assume the worst, act quickly, and take over cautious approaches, which seems to be emerging."
Analysts team of Commonwealth Bank (CBA) reported: "The market's further bet on the FOMC rate hike and/or negative news related to Omicron may push the AUD/USD below 0.7000."
This article is from Huitong.com
