Covid concerns were on top of markets’ mind over the last week as the emergence of the Omicron variant led to a deterioration in risk sentiment, with some countries re-imposing travel restrictions and domestic measures as well. The uncertainties have been heavily driving markets over the past five days, with risk assets taking a plunge while markets looked past most of the economic data as the focus remained on headlines around the Omicron variant. Due to the large unknowns around the virus, with little information known on transmissibility and vaccine efficacy, FX markets were in wait-and-see approach throughout the second half of the week. It will likely take a couple of weeks for scientists to announce more concrete information on the new variant, and while those concerns are still lingering, markets will have to play it by ear. Next week’s calendar includes a Bank of Canada meeting and a National Bank of Poland meeting, along with several CPI releases including the US. While the BoC is expected to hold fire on Wednesday, Thursday’s speech from BoC Deputy Governor Gravelle will be heavily watched for clues around the normalisation path. The NBP is expected to hike rates by at least another 50bps to combat the rise in inflation, after the central bank suddenly changed its mantra on inflation in October and has expressed concerns around rising prices since.
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Simon Harvey, Senior FX Market Analyst
Ima Sammani, FX Market Analyst