The Euro moved lower ahead of Monday’s New York open with the single currency hampered by concerns over geo-political tensions with a particular focus on the Russia-Ukraine tensions. There were reservations over the risks of an escalation in tensions and there will also be the threat of a disruption to energy supplies which would also have an adverse impact on the economy, especially with existing concerns over supplies.
There were also further concerns over the potential for a rapid spread of the Omicron variant within the Euro-zone which would risk further damage to the economic outlook. The Euro dipped to lows near 1.1260 before stabilising and recovering some ground with some evidence of a covering of short Euro positions given fragile risk conditions as markets shied away from aggressive carry trades given less confident risk conditions.
There was also position adjustment ahead of Wednesday’s Federal Reserve policy statement. There are expectations that the central bank will move towards a faster pace of slowing asset purchases. There are also expectations that the latest economic projections will see an increase in interest rate forecasts by individual Fed members. The dollar was, however, hampered to some extent by expectations that a hawkish policy stance had already been priced in.
Overall, the Euro consolidated around the 1.1285 level at the European close while commodity moved lower against the US dollar.
The US dollar was little changed on Tuesday with the Euro trading around 1.1280 with expectations of a dovish ECB stance limiting net support.
US Treasuries strengthened further in early New York on Monday with the 10-year yield dipping below 1.45%. Wall Street equities dipped after the US open, but the US currency was broadly resilient with the dollar settling around 113.50 against the yen.
Trading ranges remained narrow later in the session with no significant US data releases while markets monitored US Omicron developments closely. Wall Street equities traded lower with the dollar unable to make any headway while generally narrow ranges prevailed.
The Bank of Japan added liquidity aggressively for the second successive day on Tuesday as it looked to counter a sharp increase in short-term interest rates.
US equity futures edged higher on Tuesday, although regional bourses were generally lower amid a more fragile risk tone.
The dollar was held in tight ranges and traded around 113.60 against the yen in early Europe amid a firm overall tone with the Euro just above 128.00.
Sterling was able to resist renewed selling pressure at Monday’s European open with no move to attack the 1.3200 level against the dollar. There were important reservations over the Omicron variant, especially with Health Secretary Javid warning that the variant was spreading at an alarming rate, especially in London.
The latest evidence also suggested that there had been a sharp drop in public transport use as governments guidance again called on employees to work at home where possible. The main focus at this stage was on accelerating the vaccine booster programme. In this context, there were hopes that a strong booster programme could give the UK a relative advantage in global terms, but there were still important concerns over the implications of a surge in infections.
Bank of England Governor Bailey stated that he did not expect that the Omicron variant would not cause market turmoil with no direct comments on monetary policy ahead of Thursday’s meeting. Overall, the UK currency settled around 1.3220 against the dollar after failing to hold above the 1.3250 level while the Euro posted a limited net advance to the 0.8540 area as global risk appetite remained generally fragile.
The latest UK labour-market report recorded a larger than expected decline in jobless claims with unemployment declining to 4.2% from 4.3% while headline average earnings slowed to 4.9% from 5.8%, but above expectations of 4.6%. Reaction was muted despite firm data with Sterling holding only just above 1.3200.
Swiss sight deposits increased to CHF722.7bn in the latest week from CHF720.3bn the previous week. This was the largest increase for seven months and indicated that the National Bank had intervened more aggressively to curb franc appreciation, but Swiss currency demand remained firm.
The Euro was unable to hold any gains and retreated slightly to near 1.0410 while the dollar was unable to sustain a move above 0.9250 and settled around 0.9225.
There was little change on Tuesday with the dollar fractionally higher as caution prevailed ahead of key central bank meetings.