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Euro falls as Austria begins fourth national isolation from COVID-19

The euro fell to a 16-month low on Monday amid growing fears over the impact of new COVID-19 restrictions in Europe, with Austria starting a full lockdown and Germany considering following suit.

A fourth lockdown has begun in Austria, the first imposed after vaccines became widely available and Christmas markets, bars, cafes and theatres closed.

The fourth wave of infections has plunged Germany, Europe's biggest economy, into a national emergency, Health Minister Jens Spahn said, warning that vaccination alone would not reduce the number of cases.

The euro slipped 0.25% to $1,122 at 0905 GMT, close to the 16-month low touched on Friday when Austria announced Lockdown.

"Pandemic risk premiums have unexpectedly returned to European currency markets and could make the euro vulnerable this week," ," Chris Turner, head of international markets at ING, told clients.

New restrictions and pressures on Europe's services sector now give the European Central Bank many more reasons to slowly tighten its policy, Turner added.

Against sterling, the euro rose 0.1% to 83.95p after it touched its lowest level against the UK currency since February 2020, as the market weighed on cautious comments from Bank of England Governor Andrew Bailey on inflation last weekend.

Markets expect the Bank of England to become the first major central bank to raise rates since the pandemic began in an attempt to tackle inflation, which has hit a 10-year high due to soaring energy bills.

Meanwhile, the dollar received further support from optimistic comments by Federal Reserve officials Richard Clarida and Christopher Waller on Friday, who suggested that a faster pace of stimulus cuts may be appropriate amid an accelerating recovery and hot inflation.

The dollar index, as seen by Thai เกี่ยวกับโบรกเกอร์ Exness, which measures the currency against six major peers, was little changed at 96.141, remaining within sight of last week's 16-month high of 96.266.

The quicker end to the gradual rate cut also raised the likelihood of an earlier interest rate hike.

Minutes of the Federal Open Market Committee meeting earlier this month, when policymakers announced the start of the cuts, are due to be published on Wednesday. They may provide more information on how many Fed officials are considering a faster rate cut or an earlier rate hike.

US President Joe Biden is also likely to announce his candidacy for Fed chairman this week after interviews with incumbent Jerome Powell and Fed governor Lael Brainard.

 

Read more: Banks' equity investments jumped an unprecedented 26% in a fortnight: RBI data

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