It’s been a veritable feast of central bank meetings (in case you were on a different planet) over the last few days. Markets are desperately trying to digest all the new forecasts, projections, dot plots and statements before the holiday season kicks in for good.

The latest meetings have seen all the main policymakers who control the monetary policy mechanisms dial in the emergency measures enacted over 18 months ago.

This has primarily been due to inflation being the biggest threat to the economic outlook.

Central banks in Europe have followed the Fed’s lead and pivoted – at varying speeds – toward tighter policy to fight rising price pressures not seen in many years.

In turn, central banks are looking through the uncertainty brought about by the Omicron variant. In effect, they are saying the coronavirus is no longer calling the shots in their economies, even if more social restrictions may cause more protracted issues with supply bottlenecks and shortages. Indeed, Goldman Sachs said overnight Omicron hasn’t had much of an impact on mobility and oil demand so far.

BoE first G7 bank to hike

Upside surprises to inflation convinced the BoE to tighten pre-emptively yesterday, despite mounting Omicron uncertainty. CPI is expected to peak at 6% in April next year, up from 5% previously.

The labour market is the bank’s main worry as it is continuing to tighten. Perhaps the biggest surprise on the day was how many MPC members voted for a hike, after the disappointment of not raising rates at its last meeting.

The key question now is the path of the rate hike cycle and the timing of the next move. Not forgetting the impact of Omicron which as the MPC say, is unclear at this stage.

Cable had shown signs of stabilising around 1.32 before the meeting with a base forming. A “rounding bottom” is often found at the end of extended downward trends and signifies a reversal in the long-term trend. Wednesday had a bullish outside reversal day and prices pushed up above 1.33 after the BoE. Major resistance is 1.3411 and 1.3571/79.

Markets cautious into the weekend

For risk markets, the rally immediately after the Fed meeting has reversed abruptly, with growth stocks hit particularly hard. The tech-laden Nasdaq closed lower by 2.47% while the more defensive Dow tipped into the red even as banks rallied. Asian markets are being sold and US futures point to more losses to end the week.

It’s probably no surprise if we see more selling as traders take risk positions off with the unknown of Omicron lingering.

Safe haven currencies are outperforming this morning with CHF and JPY all showing strength.

Gold bugs welcomed the move lower in the dollar and the precious metal has moved above $1800 for the first time in over two weeks. Both the 50-day and 200-day simple moving average should offer support around $1789. The first upside target and resistance comes in at $1830.

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