December 17, 2021
USD/JPY: The dollar fell against the Japanese yen as markets turned to risk, sorting through central bank policy statements looking for clues about coming interest rate differentials and economic strength. Different stances taken by the major central banks underscore deep uncertainty over how hard the spread of Omicron will hit the economy and how much each of them should do to combat rising inflation, which is hitting the US and UK hard, but less so in Europe. The Bank of Japan will announce its policy decision today, but no change in the main elements of its ultra-soft policy is expected, as inflation is still well below the central bank’s target.
GBP/USD: The pound rose against the dollar after the Bank of England surprised investors by raising interest rates and the European Central Bank announced it was cutting monetary stimulus. The UK became the first G7 economy to raise rates since the pandemic began, while the U.S. Federal Reserve also announced plans to tighten monetary policy in 2022, while the ECB only slightly reduced its stimulus. Meanwhile, the UK reporting a second consecutive day of record high daily cases of covid, which recently increased by 88.376 people. The government has already imposed activity restrictions, but the more rapid spread of the South African variant of covid seems to be worrying authorities in the run-up to the holidays.
XAU/USD: Gold remains in the hands of the bulls. The synergy of rhetoric and central bank actions put pressure on real yields in an uncertain environment. The risk associated with the Omicron coronavirus variant for global growth and sustained inflation is a perfect storm for the yellow metal. The yellow metal is trading above the psychological $1.800 mark for the first time this month after a series of central bank decisions, which in some cases surprised with its hawkish stance. Various changes in monetary policy and guidance were justified by rising global inflation. However, despite some optimism about growth accompanying some of these central bank decisions, downside risks have raised serious concerns, putting pressure on real yields.