Take a fresh look at your lifestyle.

Dollar stays soft with Omicron and Fed top of mind

Investing.com - Financial Markets Worldwide

Please try another search

Economy33 minutes ago (Dec 09, 2021 12:25AM ET)

Dollar stays soft with Omicron and Fed top of mind © Reuters. FILE PHOTO: FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao/File Photo

By Alun John

HONG KONG (Reuters) – This week’s rally in risk-friendly assets and currencies like the Australian dollar petered out on Thursday, but the U.S. dollar struggled to regain its lost ground as investors waited for a key Federal Reserve policy meeting due next week.

The dollar was steady at $0.7171 just off Wednesday’s week high, having gained this week along with equities, while the euro sat at $1.1331, after jumping 0.7% on Wednesday to a week high of 1.1335.

MSCI’s all-country world index is back in sight of all-time highs, having had its best day in more than a year on Tuesday and rising further since then. [MKTS/GLOB]

Markets have been roiled week by news of the new strain of COVID-19, which drove investors to safe havens last week, but have since taken heart from signs that the worst fears may not be realised.

BioNTech and Pfizer (NYSE:) said on Wednesday a three-shot course of their COVID-19 vaccine neutralised the new Omicron variant in a laboratory test, an early signal that booster shots could be key to protection against infection from the newly identified variant.

“It’s very ‘virus-on’, ‘virus-off’ in the FX market, and I think we are going to be stuck with this for a while,” said Paul Mackel, global head of FX research at HSBC. “The headline risk associated with Omicron is very high, it’s very confusing, and it’s making the intraday moves fairly volatile.”

Illustrating this, the pound dropped to a year low on Wednesday after British Prime Minister Boris Johnson imposed tougher COVID-19 restrictions in England, ordering people to work from home, wear masks in public places and use vaccine passes.

On Thursday it too was quiet, having rebounded a little to last trade at $1.3207.

The new strain is also making it harder for market participants to predict how quickly central banks will cut back pandemic-era emergency stimulus and raise interest rates.

Banks’ different schedules had been the major factor shaping currency markets in recent weeks. Most importantly the U.S. Federal Reserve is expected to announce it will accelerate tapering of its bond-buying programme at its meeting next week.

“The risks of the Fed not announcing a faster taper on 15 December stem primarily from the Omicron variant,” wrote analysts at Nomura in a note.

“We believe that if Omicron-related fears subside, the market would quickly reprice in U.S. Fed tightening, potentially beyond what was priced in before the Omicron news,” they said.

Expectations of U.S. tapering had helped the rise to over a year high in late November, before Omicron’s emergence sent it lower.

CPI inflation data due Friday could also have an effect on the Fed’s decision.

The Canadian dollar was largely unchanged after the Bank of Canada held its key overnight interest rate at 0.25%, as expected, and maintained its guidance that a first hike could come as soon as April 2022, having gained to its highest level in around three weeks ahead of the meeting along with higher oil prices.

hovered at a more than 3-1/2-year high against the dollar on Thursday on continued year-end seasonal corporate demand, though some investors were growing cautious over how much more Beijing would allow the currency to appreciate.

slipped 1.3% to just below 50,000 as it continues to trade in a narrow range after a sharp weekend plunge.

Related Articles

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More