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Euro Surges as Highly-Mutated Coronavirus Variant Rattles Global Markets

Published: 26 Nov at 1 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada,

Pound (GBP) Gains as Coronavirus Jitters Hit Markets

The Pound (GBP) made significant gains against its more risk-sensitive peers at the end of the week.

News of the emergence of a highly-mutated coronavirus variant in southern Africa described as more transmissible than the Delta variant and able to evade immune responses that current vaccines provide rocked global markets.

However, Sterling’s gains were limited and fell against the Euro as the threat of the latest variant appears to have caused some investors to reprice expectations for a rate hike from the Bank of England (BoE) at its December policy meeting.

With the threat of renewed restrictions and impact on economic activity, some GBP investors may bet the UK central bank could delay its decision to raise rates, potentially denting the Pound next week.

Euro (EUR) Boosted by Safe-Haven Demand

The Euro (EUR) surged across the board on Friday amid market flight to safe-haven assets.

Fears over the new coronavirus variant sparked an aggressive selloff of emerging market and risk-sensitive currencies, which in turn boosted the Euro.

EUR exchange rates also benefitted from USD weakness due to the negative correlation in the pairing, although US markets reopening later in the day could remove some of that support.

Rising Covid-19 cases and renewed restrictions in Europe will likely continue acting as a headwind to the Euro, while Eurozone inflation data may drive additional volatility next week.

US Dollar (USD) Mixed as Treasury Yields Soften

The US Dollar (USD) lacked strong direction due to thin trade as US markets closed for the Thanksgiving holiday.

While USD strengthened due to safe-haven demand against risk-sensitive currencies, falling US Treasury yields limited gains and caused losses versus the Euro.

However, US markets reopening later in the day may provide the ‘Greenback’ some support.

After the release of the Federal Open Market Committee (FOMC) minutes lifted expectations for accelerated tapering and rate hikes in 2022, speculation over the Fed raising rates amid concerns over the impact of the new coronavirus variant may stoke some volatility in the US Dollar.

Canadian Dollar (CAD) Crashes as Oil Prices Fall

The oil-sensitive Canadian Dollar (CAD) tumbled on Friday as oil prices dived to a two-month low.

WTI crude fell 5% to $73 a barrel as concerns over the emergence of worrying Covid variant spooked markets and fuelled expectations of a supply surplus early next years if countries have to begin imposing restrictions again.

Looking ahead, Canadian third quarter GDP and forecasted falling unemployment may provide the ‘Loonie’ with some support next week.

Australian Dollar (AUD) Slides amid Risk-Off Trade

The Australian Dollar (AUD) slumped in end of week trade as a risk-off mood swept markets and weighed on the risk-sensitive ‘Aussie’.

Market jitters dented AUD despite Australian retail sales for October unexpectedly jumping by 4.9%, above forecasts of 2.5% and up from 1.3% in September.

Forecasts pointing to a contraction in third quarter GDP and a decreasing trade surplus may further weigh on AUD exchange rates next week.

New Zealand Dollar (NZD) Drops as Coronavirus Variant

The New Zealand Dollar (NZD) also fell in risk-off trade as news of the coronavirus variant rocked markets and triggered a huge selloff in risk-sensitive assets such as the New Zealand Dollar.

Earlier in the week, the Reserve Bank of New Zealand’s (RBNZ) decision to raise interest rates to 0.75% from 0.5% had disappointed market that expected more aggressive tightening, which sent the New Zealand Dollar sharply lower.

As of Friday, 26th November 2021, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1788, GBP USD exchange rate was 1.3342, GBP AUD exchange rate was 1.8732, GBP NZD exchange rate was 1.9559, and GBP CAD exchange rate was 1.7072.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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