IFX Market Report: Friday 17th December 2021

Sterling spiked on Thursday as the Bank of England became the world’s first major central bank to hike interest rates since the start of the COVID-19 pandemic. In its last meeting of the calendar year, the BoE “said it had to act now, even as the Omicron coronavirus variant sweeps Britain, because it saw warning signs in underlying inflation pressures”. The Monetary Policy Committee, consisting of nine members, voted 8-1 in favour of raising the Bank Rate to 0.25% from 0.1%. Speaking at the meeting, Governor Andrew Bailey said Omicron was already “hurting retailers and restaurants but the BoE had felt compelled to stop the recent jump in prices from becoming a longer-term problem”. He added that the central bank is “concerned about inflation in the medium term” and moving forward it is unclear “whether Omicron would ease or add to inflation pressure”. GBP capitalized against both the Euro and Dollar immediately after the announcement was made, but sadly was unable to sustain those gains to the close.

GBPUSD opened the session on the cusp of 1.33 at 1.3299. Cable reached as high as 1.3374 in session, but lost those gains by the close, ending the day at 1.3323.

GBPEUR also reacted positively to the BoE’s rate hike, reaching as high as 1.1828 just after midday. The pair opened at 1.1750 and closed at 1.1780.

EURUSD traded in a tight range throughout the session on Thursday. The pair started the day at 1.1317 and close just below at 1.1310.

The European Central Bank also met on Thursday, leaving rates unchanged as expected. The ECB also confirmed that they would be ending their Pandemic Emergency Purchase Programme (PEPP) in March. The Euro initially responded positively to the latest ECB announcement but similarly to Sterling was unable to maintain those gains by the end of the session.

On the data front today, at 07:00 UK Retail Sales for November were released, coming in at 4.7%. The German Ifo Business Climate was released at 9AM, printing a final figure of 94.7. At 10:00 the Eurozone’s final YoY Inflation Rate is released, followed by the BoE Quarterly Bulletin at 12:00. In the evening at 18:00, Fed member Christopher J. Waller will be speaking.

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