The markets are risk-off as the Omicron narrative heats up and the UK announces 1 fatality amid rising infections related to the variant of concern. The markets will be positioning themselves for a dovish Fed if the variant continues to spread fast around the globe as fears will be that the Central Banks and especially the Fed are unable to combat inflation with the expected monetary policy changes.
The United Kingdom's Prime Minister Boris Johnson announced today that at least one person has died after contracting the Omicron variant of Coronavirus. This sad news came after the Prime Minister declared a ‘Tidal Wave’ of Omicron was approaching the UK. Health Secretary Javid said Omicron accounts for 20% of cases in England. Earlier in the day, UK Health Secretary Sajid Javid noted that the newly detected strain is spreading at an "astronomic rate" and that there are ten people in British hospitals who have Omicron. The Omicron variant has been reported to cause only mild symptoms around the world, however, more studies are needed to determine how severe it is. According to the PM's spokesperson, there are no plans to close hospitality venues due to Omicron.
The GBPUSD is trading within the range printed on Friday but is in a major downturn, with the daily moving averages all pointing lower. 1.3200 has offered some support recently but if the narrative around the Omicron cases in the UK ramps up, I can see traders getting more nervous around the pound, knowing that the government will have a Plan C in the wings, along with some sort of lockdown measures around Christmas. This evening, Bank of England Governor Bailey is scheduled to deliver a speech regarding the Financial Stability Report. This could be a catalyst to move the pound out of the current range.
Major US stock market indexes began the session in the red, following a strong end to last week after the US CPI data. Investors and traders are closely monitoring the unfolding Omicron narrative ahead of this Wednesday's FOMC interest rate decision. The S&P500 has traded down to some intraday support level which had been a previous level of resistance. A break below would set up a possible continuation trade assuming this current level can become resistance again.
The USDCAD is riding higher following on from comments from the Bank of Canada. The price of oil is also lower which is weighing on the Canadian dollar.
The Bank of Canada (BoC) and the Canadian government have committed to maintaining inflation at 2%. Globally, central banks and planners have committed to making our money worth less by 2% per year in order to encourage productive societies. The Bank of Canada said in its statement that neutral interest rates may be lower than in the past, which means that central banks will have less room to lower their policy interest rates if an adverse shock arises. If I recall correctly, in the previous adverse shock, the central banks turned to governments to introduce stimulus measures through government spending, so I am not sure many people think the central banks will keep rates low for longer to stimulate their economies.
The US dollar index hasn’t been able to break out of the consolidation pattern ahead of tomorrow's PPI readings. It is quite likely that the greenback remains in this holding zone until after the FOMC press conference on Wednesday.