The data showed that the inflation in the UK is at the highest level for more than a decade, as the stock market globally separated before a US Federal Reserve interest rate decision.
After the news that UK inflation had hit 5.1% in November, the British capital’s benchmark Financial Times Stock Exchange 100 Index with a possible interest rate rise, the pound surged in anticipation. At the time of rate call from both the European Central Bank and the Bank of England, the Paris CAC 40 index added 0.6 %, with Frankfurt’s Dax rising 0.3%.
Only Nasdaq dipped before the announcement of the Federal Reserve rate decision later in the day, as, on Wall Street, S&P 500 and Dow opened flat.
The news about the coronavirus latest variant, Omicron, brought about fear weakening the oil prices.There is a spike in energy prices, snags in long-running supply chains, and increasing demand as the pressure is mounting on major central banks to control inflation, which is running rampant.
The investors nervously awaited news from the Federal Reserve, which was expected to deliver information regarding withdrawal of its support; just as the outbreak of Omicron provoked economic recovery concerns, the Asian equities fell.
As the policymakers are still worried about Omicron, inflation runs rampant despite the BoE forecast to hold its low-interest rate.
IG analyst Joshua Mahony said that before the Federal Reserve, Bank of England, and European Central Bank released their monetary policy decision, the pound was on the front foot, ahead of a crucial 24-hours period.
The Bank of England will be under pressure as UK CPI inflation reaches a 10-year high, even if there were to hold off their raising rate.
The UK economic picture looks unstable as it is caught between the constantly rising inflation and the explosion of Omicron in the general public.
The Federal Reserve aims to end its vast bond-buying program sooner than expected. This will allow the Federal Reserve to lift interest rates by mid-2022, as the data from last week showed the US consumer prices rose in November at their fastest pace in the past four decades.
Putting an end to central bank largesse – instituted at the start of the pandemic – has weighed heavily on global equity markets over the past few months, seeing many markets hit record-highs or multi-year highs.
Mahony said that the traders expected (Chairman Jerome) Powell that in order to ramp up the tapering process in response to increased inflation pressure as the Federal Reserves grab the headlines.
Putting together all these factors, Fawad Razaqzada of ThinkMarkets said, the Fed does not “have a basis to justify the Fed not tapering QE now with consumer inflation at its highest since the early 80s, producer prices rocketing to new highs, GDP already above pre-pandemic levels, and the labor market tight”.
The government is forced to reintroduce new measures against the threat of the Omicron variant, as it threatens to deal a blow to the already fragile economy.