Dollar remains soft with top Omicron and Fed

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

December 9, 2021

By Alun John

HONG KONG (Reuters) – This week’s rebound in risk-friendly assets and currencies like the Australian dollar faltered on Thursday, but the US dollar struggled to regain its footing. lost as investors awaited the Federal Reserve’s key policy meeting next week.

The Australian dollar was steady at $0.7171 at Wednesday’s weekly high, having risen this week along with equities, while the euro stood at $1.1331, after rising 0 .7% on Wednesday to a weekly high of 1.1335.

The MSCI all-country world index is back to an all-time high, having its best day in more than a year on Tuesday and rising further since. [MKTS/GLOB]

Markets were stirred last week by news of the new strain of COVID-19, which sent investors to safe havens last week, but have since turned their attention to signs of fear. The worst may not come true.

BioNTech and Pfizer said on Wednesday that a three-shot round of their COVID-19 vaccine neutralized the new Omicron variant in a lab test, an early signal that booster shots are effective. may be key to protecting against infection from the newly identified variant.

“It’s very likely that there is a ‘virus-off’ in the forex market, and I think we’ll see that,” said Paul Mackel, global head of FX research at HSBC. struggled with this for some time. “The headline risk regarding Omicron is very high, it is very confusing and it makes the intraday quite volatile.”

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

On Thursday it was also quiet, having recovered a bit to last trade at $1.3207.

New tensions are also making it difficult for market participants to predict how quickly central banks will cut pandemic-era stimulus and raise interest rates.

The different schedules of banks have been a major factor shaping money markets in recent weeks. Most importantly, the US Federal Reserve is expected to announce it will accelerate cuts to its bond-buying program at its meeting next week.

“The risk that the Fed does not announce a faster reduction on December 15th stems mainly from the Omicron variant,” analysts at Nomura wrote in a note.

“We believe that if concerns regarding Omicron subside, the market will quickly re-price as the US Fed tightens, potentially above valuation levels prior to the Omicron news,” they said. ,” they say.

Expectations of a gradual US decline helped the dollar index rally to its highest level in more than a year in late November, before the arrival of Omicron sent the index lower.

Friday’s CPI inflation data could also influence the Fed’s decision.

The Canadian dollar was largely unchanged after the Bank of Canada kept its key overnight interest rate at 0.25%, as expected, and maintained guidance that the first rally could happen in April. 2022, after rising to a high of about three weeks. ahead of the meeting along with higher oil prices.

China’s yuan hovered at a 3-1/2 year high against the dollar on Thursday as seasonal corporate demand continued into year-end, although some investors are growing increasingly cautious. How much more Beijing will allow the currency to appreciate.

Bitcoin fell 1.3% to just under 50,000 as it continues to trade in a tight range following a steep plunge over the weekend.

(Reporting by Alun John; Editing by Stephen Coates)