GBP weakens as UK tightens Covid restrictions; JPY recovers
09:41, 9 December 2021
The British pound (GBP) was yesterday’s worst performing G-10 currency, falling around 0.3% against the dollar and 1.0% against the euro, following the UK government’s announcement of new restrictions aimed at containing the spread of Omicron. Fresh measures include the recommendation to work from home, Covid passports for public events, and mandatory mask requirement in most public places. Cable (GBP/USD) fell to the year’s low of 1.3163, before finding strength to recover to 1.3230 and hold at 1.3201 by 10:00 UTC.
The USD gave back some of its recent gains versus major peers yesterday after Pfizer and BioNTech’s announcement that a third shot of their vaccine offers good protection against the novel Omicron form. The Japanese yen (JPY) was the outperformer in European morning trading, as market sentiment deteriorated following the default of the Chinese real estate giant Evergrande.
- EUR/USD was at 1.1319 (-0.20%) by 10:00 UTC
- USD/JPY tilted lower to 113.51 (-0.13%)
- USD/CHF edged up to 0.9215 (+0.13%)
GBP/USD was roughly unchanged at 1.3201 (-0.06%)
Yesterday, risk-sensitive and commodity-related currencies rallied on hopes that Omicron will not derail the global recovery, but are losing momentum this morning. The Canadian dollar (CAD) received little support as the Bank of Canada (BoC) maintained its rate at 0.25% and expressed a less hawkish attitude than at the previous meeting.
- AUD/USD edged 0.22% down to 0.7155
- NZD/USD was 0.12% lower at 0.6799
- USD/CAD gained 0.25% to 1.2683
- USD/NOK rose 0.83% to 8.9446
Elsewhere, emerging market currencies weakened across the board this morning. The South African rand (ZAR) lost 0.6%, the Mexican peso (MXN) softened 0.2%, the Russian rouble (RUB) declined 0.5% and the Turkish lira (TRY) dropped 0.5%.
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Forex Daily Matrix – 9 December 2021
The US Dollar Index (DXY) was last seen at 96.06 levels, up 0.14% on the day.
The US dollar momentum weakened yesterday on reports that a booster shot of the Pfizer/BioNTech vaccine may neutralise the Omicron variant.
This morning, the yield on the 10-year Treasury Note retraced to 1.5% after touching 1.54% yesterday.
Meanwhile, the incidence of Covid-19 cases and hospitalisations continues to rise in the United States: the seven-day rolling average of new Covid-19 cases rose to 360 per million people, the highest since August, while new hospital admissions climbed to 155 per million people.
On the data, today’s new claims for unemployment benefits at the start of December should show continued decreases – median expectations are for 222,000 – indicating that labour demand is continuing to recover.
USD traders will focus on Friday’s November Consumer Price Index and the Federal Reserve’s meeting next week (16 December).
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 94.81
- 200-day moving average (one-day chart): 92.62
- 14-day Relative Strength Index (RSI) (one-day chart): 57.81
Chart of the day: Omicron variant is rising in advanced economies
EUR/USD was last at 1.1319, down 0.2% on the day.
This morning in Germany, October international trade data showed an increase in both exports (+4.1% month on month) and imports (+5% month on month), with a trade surplus of €12.5bn ($14.14bn), slightly below forecasts (€13.4bn).
Olaf Scholz, the Social Democrats’ leader, was elected chancellor of Germany yesterday with 395 votes out of 736 Bundestag members. Scholz will lead the ‘traffic light coalition’, which is made up of the SPD, Greens, and FDP.
On the monetary policy front, ECB executive director Isabel Schnabel voiced worry about the danger that quantitative easing may result in asset overvaluations in real and financial assets. Schnabel concluded that the ECB’s asset purchases’ cost-benefit ratio is deteriorating as a result of rising moral hazard behaviour.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1471
- 200-day moving average (one-day chart): 1.1799
- 14-day Relative Strength Index (RSI) (one-day chart): 44.98
The cable (GBP/USD) was trading at 1.3256, up 0.2 percent on the day, while EUR/GBP was 0.2% down to 0.8568, by 10:00 UTC.
Yesterday, sterling plunged following Prime Minister Boris Johnson’s announcement of additional limitations to help curb Covid-19, contradicting his prior pronouncements.
Additionally, the UK government is also facing significant criticism following the release of a tape showing senior aides laughing about a party in Downing Street last Christmas during a period when such meetings were prohibited.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (one-day chart): 1.3519
- 200-day moving average (one-day chart): 1.3783
- 14-day Relative Strength Index (RSI) (one-day chart): 29.84
Forex Performance Heatmap – 9 December 2021
Other currency pairs (% change from previous close):
- USD/MXN +0.23%
- USD/ZAR +0.66%
- USD/TRY +0.46%
- USD/RUB +0.45%
- USD/KRW +0.04%
- USD/CNH +0.06%
- EUR/NOK +0.61%
- EUR/SEK -0.06%
- EUR/PLN +0.20%
- EUR/HUF +0.15%
Read more: Businesses nervous as England activates Covid Plan B
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