Sterling drifts lower as Omicron reservations persist
Halifax house prices showed an increase of 1.0% for November, slightly above forecasts but the year-on-year increase remained unchanged at 8.2%. The pound remained firm until midday but was unable to rise above 1.3300 to the dollar despite better risk conditions. There were further expectations that the Bank of England would defer an interest rate hike at the December 16th policy meeting, mainly due to Omicron uncertainties. Expectations of a hawkish policy statement at the meeting limited any potential pound selling pressure.
German ZEW economic sentiment dropped to 29.9 for December, better than forecast but the current conditions component fell well below forecasts. ECB council member Kazimir stated that it was important not to tinker with the bond-purchase programme (money printing). And fellow ECB member Muller stated that it was not obvious that the central bank should increase the bond-purchases beyond March given high inflation. The edged to dip to lows just below 1.1230 to the dollar on expectations that euro bond yields would remain very low over the medium term. Political rhetoric will be watched closely with German Chancellor Merkel officially leaving office on Wednesday.
After the New York open Sterling retreated close to 1.3200 to the dollar while the euro settled close to 1.1765. The US overall trade deficit narrowed to $67.1bn for October from a record $81.4bn the previous month as exports posted a strong gain to a record high on the month.
There was a pound recovery to just above 1.3250 against the dollar this morning although there were still reservations over UK Omicron news.