Omicron Worry & U.S. Fiscal Roadblock Weigh On Risk

Greater worry re: omicron (punctuated by a lockdown in the Netherlands and fears re: wider containment measures across Europe & the UK) coupled with U.S. Democratic Senator Manchin’s decision to effectively block President Biden’s Build Back Better plan dented risk appetite in Asia. The PBoC delivered a 5bp cut in its 1-Year LPR fixing (which took most by surprise, even after various state-owned media outlets ran commentary pieces alluding to chances of such a move in recent days) which failed to support risk appetite, even as Beijing tipped its hat further towards pro-growth policies.

• This left the JPY atop the G10 FX table, as you would expect in such an environment, although all of the major FX crosses held within their recently observed ranges.
• The combination of the dent in broader risk appetite and another monthly trade deficit for New Zealand weighed on the kiwi, which found itself at the bottom of the G10 FX pile. NZD/USD sits at ~$0.6720, ~30 pips softer on the day.
• The broader backdrop & some idiosyncracies weighed on GBP. Continued political woes for PM Johnson (the resignation of Brexit Minister Lord Frost, growing discontent with the PM from within his own party, trailing the Labour party in opinion polls & further signs of Tory officials, including himself, potentially flouting some of the COVID restrictions that have been in place) in addition to the prospect of announcements re: deeper COVID restrictions in the coming days (Health Sec. Javid did not rule out such a move before Christmas, while the Times has pointed to a 2-week circuit breaker post-Christmas, whereas the Telegraph pointed to the potential announcement of warnings for household mixing over the Christmas period) dominated weekend press reports.
• There isn’t anything in the way of meaningful economic data releases to note on Monday, which will leave headline flow/broader risk appetite at the fore.