Dollar steady as traders wait for central banks, pound drops inches on COVID fears

FILE PHOTO: FILE PHOTO: An illustration shows US$100 bills
FILE PHOTO: An illustration shows a US$100 banknote taken in Tokyo August 2, 2011. REUTERS / Yuriko Nakao

December 13, 2021

By Alun John

HONG KONG (Reuters) – The dollar was quiet at the start of the week in which central bank meetings, including that of the Federal Reserve, are likely to boost money markets, while the pound sterling fell slightly after Boris Johnson warned of the impact of the new COVID-19 variant.

The dollar index, which measures the greenback against a basket of six major currencies, was little changed at 96,091, down from a peak of 96.938 in mid-November, before news of the novel coronavirus omicron variant spread. widely transmitted.

On Monday, the euro inched higher to $1.1316 while the yen fell slightly to 113.51 a dollar.

Sterling fell 0.1% to $1.3257 after British Prime Minister Johnson said on Sunday Britain faces a “tide wave” of the Omicron variant of the coronavirus and that two doses of a vaccine will not enough to prevent it.

The market has been volatile since the new stress emerged on fears it could have a major impact, initially directing flows to safe-haven assets. Reports suggest it may not be as bad as fears prompted these flows to reverse last week.

“All I want for Christmas is clarity,” analysts at Barclays wrote in a research note.

Aside from breaking news on the Omicron variant, the most important events scheduled for money markets this week are central bank policy meetings, with six of the G10 and Several emerging market central banks will meet.

“Central banks will need to strike a difficult balance between the uncertainty caused by Omicron and rising inflation,” said Barclays analysts.

Most importantly, the Federal Reserve’s two-day meeting ends on Wednesday.

Investors now expect the Fed to announce an accelerated cut in its bond-buying program, opening the door for at least one rate hike next year.

According to CME Group’s FedWatch program, traders now have a more than 50% chance of a rate hike in May 2022.

An acceleration of cuts is likely to support the dollar, especially against currencies where central banks are likely to tighten more slowly.

“The Fed meeting could certainly prove a catalyst for EUR/USD to drop to 1.10. Although investors may prefer to wait from the ECB the next day before pursuing this move. ING analysts say USD/JPY could also put pressure on 115 after the Fed.

Both the European Central Bank and the Bank of Japan will review their policy settings this week. Market players are starting to talk about the possibility of the ECB becoming more hawkish, while the BoJ is likely to remain dovish.

Also hosting the meetings were the Bank of England, and the central banks of Norway and Switzerland.

Bitcoin traded just under $50,000 after the world’s largest cryptocurrency edged up slightly over the weekend, but there’s still work to be done to reclaim November’s record high of $69,000.

(Reporting by Alun John; Editing by Stephen Coates) Dollar steady as traders wait for central banks, pound drops inches on COVID fears

Bobby Allyn

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