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ECB dials back stimulus a notch but promises continued support. Emergency support to end in March and asset program to be ramped up temporarily. Overall asset buys to fall sharply after March. It's confirming its relaxed view on inflation and provided markets comfort indicating that any exit from years of ultra-easy policy will be slow. Lagarde added ECB is very unlikely to hike rates in 2022. As for the BOE, it increases rates to 0.25%, from historical low of 0.1%. It forecasts UK inflation to likely peak in April at around 6%. The EUR/USD jumped +0.53% at 1.1354. The GBP/USD gained +0.61% at 1.3342.

USD/TRY rises to record high of 15.5970 after rate decision, from 15.1174 beforehand. Turkish banking watchdog says ordered banks to tighten control of lira loans use.

USD bulls are in an optimistic mood ahead of this week's key Federal Reserve meeting, with the USD index close to pushing higher. If expectations of a Fed faster to taper come good, that could stir up new bullish bets. The USD and the markets in general are in search of a catalyst to dive in either direction, with a high sensitivity to the message the Fed will communicate. High volatility has continued for risky assets as traders reduced their risk ahead of the key Fed meeting. A mix of Omicron news and year-end profit taking, most likely also played against risky assets. 

The Sterling is heavily challenged by a doomed macro picture, with deeply negative real yields, a large debt burden and a structural current-account deficit. On the other hand, the USD has continued to strengthen against major currencies on the back of a strong economy, and investors positioning into bullish USD trades on the back of expectation of the Fed reducing its asset purchasing program and eventually beginning raising rates. The Omicron variant has also added pressure particularly to the UK and likely contributed to weakening the near-term GBP outlook. With the current GBP/USD at 1.3225, on a technical level, support may come at 1.32 and if breached there is the psychological level of 1.30. The USD should be particularly volatile this week with the US Fed on Wednesday. 

ECB President on Friday suggested Eurozone inflation is transitory and most likely peaked after November’s reading of 4.9%, well above the 2% target set by the ECB. According to Lagarde, 55-60% of recent inflation came from rising energy prices, which should decline by the end of 2022 (excluding energy, inflation reads 2.5%). Lagarde also noted the ECB had more tools available to continue to provide favorable conditions, after the expected end of asset purchases in March 2022. The comments imply that the ECB could remain very accommodative for longer than previously anticipated and could in turn continue to pressure the EUR.