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After the market had got used to the idea that hawkish action from G3 central banks in December was looking less likely, Powell yesterday seemed to put the possibility of a faster tapering back on the table. He described the Omicron variant as more of a risk, implying the situation was not serious enough to derail any policy actions. Treasuries came off their highs, EURUSD moved spiked almost 150 pips lower and the Eurodollar strip fell sharply (Dec-22 contract immediately down 15 ticks for example).
- Overnight price action and into the European open these comments continue to be digested and we note that we have seen some more downside to the Eurodollar strip overnight (although Treasuries and EURUSD have stabilised somewhat).
- We also note that Powell's rhetoric has not been repeated across the Atlantic. Yesterday BOE's Mann said that now is not the time to ask the question of when the first hike will be, given the added uncertainty of Omicron. While the ECB's Scicluna told our Policy team that the December meeting should not even be classed as the "beginning of the end of the expansionary monetary policy linked directly to the Covid crisis." (see full article here).