Omicron Angst Dents GBP, CNH Catches Bid After Uneventful PBOC Fix

Light selling pressure hit sterling at the start to the trading week, as UK health officials raised Covid alert level to 4 (one notch below the upper end of the scale), while PM Johnson warned of a "tidal wave" of Omicron infections as he unveiled more ambitious vaccination targets. Escalating headwinds for PM Johnson may have helped undermine the GBP, as latest polling showed a continued erosion in his approval rating. The press pointed to a growing discontent among Tory backbenchers, raising the prospect of a challenge to his leadership.

• The PBOC fix drew much attention today, after the previous one missed sell-side estimate by the widest margin on record (i.e. since 2018), signalling that the People's Bank are not comfortable with current yuan levels. Today's miss was more limited, the central USD/CNY mid-point was set 20 pips above the forecast level, putting a fresh bid into the redback. Spot USD/CNH tested its previous daily low but struggled to stage a convincing break of that level.
• Most G10 crosses held tight ranges amid light risk-on flows observed as an uptick in U.S. e-mini futures signalled improvement in sentiment. Participants continued to assess mixed signals from the Omicront front.
• Today is the calm before the storm, with global data docket providing little of real note. Comments from ECB's Centeno, BoE financial stability report and the BoC's mandate renewal announcement will take focus.
• Central bank activity picks up later this week, with around 20 of them set to deliver monetary policy decisions. This includes Wednesday's showing from U.S. FOMC, who are expected to accelerate a faster taper.