Currencies stabilize as Omicron’s worst fears subside

FILE PHOTO: Illustration of US dollar Swiss Franc British Pound and Euro banknotes
FILE PHOTO: Illustration for US Dollar, Swiss Franc, British Pound and Euro banknotes, taken in Warsaw January 26, 2011. REUTERS / Kacper Pempel / File Photo

November 30, 2021

By Kevin Buckland

(Reuters) – The dollar wobbled on Tuesday above a one-week low against major currencies it hit last week, as fears eased that the new coronavirus variant Omicron will derail the US recovery. United States and delay the Federal Reserve’s interest rate hike.

The safe-haven yen has stabilized about half a percent from its strongest level since November 11, reached on Monday. The euro is down about a third of a percent from Monday’s one-week high.

The risk-sensitive Australian dollar has rallied around 0.4% from a three-month low.

Traders were comforted by President Joe Biden’s remark that the US would not restore lockdowns, as well as a South African doctor’s comment that the new strain of bacteria caused milder symptoms.

In testimony prepared to Congress late Tuesday, Fed Chairman Jerome Powell said that Omicron could cause inflationary pressures to linger longer.

That is likely to hasten the need for rate hikes, while traders initially responded to Omicron’s discovery by pushing back bets on a Fed tightening because of risks to growth.

Money markets are currently seeing their first rate hike in July, but the rate isn’t fully priced in until September.

At the same time, the World Health Organization also warned of the “very high” risk of infection from Omicron, and countries around the world quickly reacted to tighten border controls.

“The less severe assessment of Omicron has allowed (the dollar index) to recover some of its decline, but” the somewhat bleak recovery in global markets suggests that still There is a high level of concern about the Omicron variant,” Westpac strategists wrote in a research note.

Strategists expect continued strength in the US economy to boost the greenback, while the Aussie continues to look weak and a break below $0.7106 is “only a matter of time”.

The dollar index, which measures the currency against six major rivals, last traded at 96.203, up from a low of 95,973 from Friday, when it suffered its biggest one-day drop since May.

The greenback rose 0.24% to 113.80 yen, after falling to 112.99 on Monday.

The Australian dollar edged higher to $0.7146, continuing to form its recovery at Friday’s low of $0.71125.

The euro was flat at $1.12955, down from Monday’s high of $1.1335.

The single currency fell to a near 17-month low of $1.1186 as European Central Bank policymakers maintained their dovish stance in the face of hot inflation. The latest reading on eurozone consumer prices will be published later on Tuesday.

(Reporting by Kevin Buckland; Editing by Lincoln Feast.) Currencies stabilize as Omicron’s worst fears subside

Bobby Allyn

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