Global risk appetite has been mixed with uncertainty and conflicting reports surrounding the Omicron variant.

The dollar failed to benefit from firm data or higher yields and posted significant losses on the day. The Euro was resilient and EUR/USD advanced to 1.1350 on short covering before fading slightly. Sterling was undermined by a tightening of coronavirus restrictions, but GBP/USD recovered from fresh 2021 lows.

The Euro drifted lower into Wednesday’s New York open with a EUR/USD retreat towards 1.1270, although there was choppy trading with fluctuations in risk appetite as markets continued to monitor global coronavirus developments. Caution ahead of forthcoming policy meetings also curbed aggressive position taking.

There were expectations that the Federal Reserve would take a hawkish stance at next week’s policy meeting and potentially sanction a faster rate of stimulus withdrawal by accelerating the rate of tapering of bond purchases. Markets will also be monitoring rhetoric surrounding interest rates within the statement.

Sterling was unable to make any headway in early Europe on Wednesday and gradually lost ground ahead of the New York open. Risk appetite dipped on renewed reservations over coronavirus developments although, significantly, the Pound failed to recover when risk conditions improved once again.

Sterling was hampered by further difficulties for Prime Minister Johnson and the government. There were also media reports that the government will introduce fresh restrictions in order to curb spread of the Omicron variant which would further damage the outlook.

Sentiment remained fragile and the government confirmed that there would be a move to Plan B restrictions in England with a renewed directive to work from home if possible. The UK currency was unable to make headway on Thursday and GBP/USD traded only marginally above 1.32.

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