Euro drops as Austria`s lockdown begin

On Monday, the Euro dropped to trade near a 16-month low on rising worries over the influence of new coronavirus restrictions in Europe. Austria began a total lockdown, and Germany considered following suit. 

Austria opened its fourth lockdown, the first introduced following vaccines became widely available, closing Christmas markets, bars, cafes, and theatres.

The fourth wave of infections has jumped Germany, Europe’s largest economy, into a national emergency, Health Minister Jens Spahn stated, warning that vaccinations alone will not lower case numbers.

The Euro slid 0.25% to $1.122 at 0905 GMT, near a 16-month low reached on Friday when Austria announced the lockdown.

Chris Turner, global head of markets at ING, told clients that epidemic-related risk premia have made an undesirable return to European F.X. markets and may keep the Euro weak this week.

New lockdowns and influence on the service sector in Europe now present the European Central Bank with many more reasons to go slow on tightening its policy, Turner continued.

Versus Sterling, the Euro trimmed 0.1% higher at 83.95 pence, following it reached its weakest level against the U.K. currency after February 2020 as the market estimated Bank of England Governor Andrew Bailey’s cautious comments on inflation over the weekend.

BoE expected to increase rates

Markets anticipate the BoE to become the first major central bank to lift rates after the start of the epidemic in a bid to stop inflation that hit a 10-year high as household energy bills rocket.

In the meantime, the dollar got further support from bullish remarks by Federal Reserve officials Richard Clarida and Christopher Waller on Friday, who submitted a faster pace of stimulus tapering may be fitting amid a quickening recovery and wild inflation.

The dollar index, which measures the currency versus six significant rivals, slightly modified at 96.141, staying within sight of last week’s 16-month high of 96.266.

A more immediate outcome to tapering raised the likelihood of earlier interest rate rises too.

The minutes of the Federal Open Market Committee’s conference at the start of this month, when policymakers published an opening to tapering, is expected Wednesday. They may present more insight into how many Fed officials are studying accelerated tapering or earlier rate increases.

U.S. President Joe Biden is also expected to declare his nominee for Fed chair this week, following interviewing incumbent Jerome Powell and Fed governor Lael Brainard.