Dollar droops as optimism on economic outlook saps demand for haven assets

The safe-haven dollar languished near an almost one-week low against its major peers on Thursday as investors adopted a more optimistic stance about the global economic outlook, despite the rapid spread of the omicron coronavirus variant.

The dollar index, which measures the currency against six rivals, stood at 96.111, not far from the overnight low of 96.020, touched for the first time since Dec. 17.

The risk-sensitive Australian dollar was steady at $0.72125 following Wednesday’s 0.86% surge.

Sterling was little changed at $1.33515 after a 0.63% rally.

Risk appetite has improved since Monday, when markets were rattled by government restrictions relating to the spread of omicron.

However, data on Wednesday showed U.S. consumer confidence improving more than expected in December, suggesting the economy would continue to expand in 2022 despite a resurgence in Covid-19 infections and reduced stimulus spending.

There was also encouraging news from a South African study, which suggested reduced risks of hospitalization and severe disease in people infected with omicron compared with the delta strain.

The euro was about flat at $1.13325 after a 0.33% overnight advance.

The dollar was little changed at 114.16 yen — another safe-haven currency — holding close to an almost one-month high from Wednesday at 114.37.

Many analysts expect the dollar to strengthen in coming months after a hawkish tilt this month at the Federal Reserve put an interest-rate increase in March on the table, setting the U.S. central bank apart from more dovish peers in Europe, Japan, Australia and elsewhere.

Money markets currently price better than 50-50 odds for a hike by the March policy meeting.

“Ongoing data strength should help bolster Fed pricing, particularly amid reports that Omicron appears to be leading to fewer hospitalisations,” TD Securities strategists wrote in a report.

Dollar regains ground as volatility starts to fade

The Aussie and Kiwi dollars on Wednesday, gave up some of their gains from the day before, as a rally in riskier asset classes began to lose steam, though moves were muted as traders started to head out for the holidays.

The Australian dollar lost 0.3% to $0.7130 and the New Zealand dollar lost 0.3% to $0.6747, having both advanced sharply the day before alongside oil and global shares.

With small declines in the pound — also a beneficiary of Tuesday’s rally — and the euro, the dollar index snapped two days of losses and edged a little higher on the day to 96.538, though it was still well within its recent ranges.

The weeks on either side of Christmas are typically low in volatility for currencies and other asset classes, analysts at ING said, though “this year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions.”

Last week Britain became the first G7 economy to raise interest rates since the onset of the pandemic, with the U.S. Federal Reserve also signaling plans to tighten in 2022 and the European Central Bank only slightly reining in stimulus.

Investors’ expectations that the Federal Reserve will raise interest rates more aggressively in 2022 than most other major central banks mean the dollar index is looking at close out 2021 not too far from its 16-month high of 96.938 last month.

The index is up 7.3% this year, which would be its best year since 2015.

Omicron continues to keep traders on edge and infections are multiplying across Europe, the United States and Asia, causing countries across the globe to consider new curbs on movement and reimpose quarantine periods for incoming visitors.

But a Bloomberg report that the U.S. Food and Drug Administration is set to authorise COVID-19 treatment pills from both Pfizer Inc and Merck as early as Wednesday may have helped the mood.

In emerging market currencies, traders were bracing for another day of volatility for Turkey’s lira, which closed up 6% on Tuesday, having been down as much as 8.6% and up as much as 18.5%.

Bitcoin rose to $49,600 its highest in over a week. Ether, the world’s second-largest cryptocurrency, has also been gaining this week and was last just above $4,000.

Dollar on back foot as Treasury yields soften, omicron keeps markets on edge

The dollar hovered below recent highs on Tuesday having lost ground overnight after a blow to Democratic spending plans in Washington, but worries about the omicron coronavirus variant kept risk currencies in check.

The dollar index, which measures the currency against six major peers, was last at 96.513, having lost ground on both the euro and the yen.

The greenback briefly approached 16-month highs at 96.914 last week, after the U.S. Federal Reserve opened the door to as many as three interest rate increases in 2022, and then found support as worries about the omicron strain caused investors to seek safety.

However, it pulled back on Monday, finishing the session down 0.12% after U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden’s hopes of passing a $1.75 trillion domestic investment bill — known as Build Back Better — said on Sunday he would not support the package.

“The dollar pulled back on the breakdown of Build Back Better. Less stimulus, weaker growth, and rates dropping at the short-end was enough to push the dollar slightly lower,” said Kyle Rodda, an analyst at IG markets.

Two-year U.S. Treasury yields on Monday touched 0.5870%, their lowest since Dec. 3, also causing the yield curve to steepen.

The pound was on the back foot at $1.3204 after British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the omicron variant if needed.

Omicron infections, which are multiplying rapidly across Europe and the United States, and doubling every two or three days in London and elsewhere, caused a sharp sell-off in share markets on Monday as well as oil.

In a sign of the uncertainty, however, Nasdaq and S&P 500 futures both climbed on Tuesday in early Asia.

The Aussie dollar was weak at $0.71055, while the New Zealand dollar was testing 13 month lows at $0.6709.

Turkey’s lira had volatile day on Monday, even by its usual standards, first falling as much as 10% before ending the session up over 20% after President Tayyip Erdogan introduced a series of steps that he said would ease the burden of the weakened currency on Turks.

He also vowed to press on with a low-rates policy that led to the lira’s slide in the first place.

Bitcoin was comparatively quiet, just below $47,000 after trending lower for the past few weeks.

U.S. dollar holds tight as investors look beyond Fed to next big central bank meetings

The dollar paused for breath on Thursday, having given up a brief rally made after the U.S Federal Reserve said it would end pandemic-era bond purchases in March, as investors awaited imminent decisions from other major central banks.

Investors are now sitting tight ahead of meetings from the European Central Bank, the Bank of England, and others before firming up their positions at the end of a busy week for central banks.

The dollar index, which measures the currency against six peers, was last at 96.391, having tested last month’s 16-month high of 96.938 after the Fed’s announcement before retreating to as low as 96.296.

On the other side of the dollar sell-off, the euro advanced 0.25% on Wednesday, the pound gained 0.27% and the risk-friendly Australian dollar jumped 1%.

“It suggests to me that markets were positioned for the Fed being more hawkish than survey expectations would have you believe,” said Ray Atrill head of FX strategy at NAB. “Also that risk assets took the latest pivot so well reinforces the fact that the U.S. dollar and risk sentiment seem to be negatively correlated.”

All three main U.S. stock indexes reversed earlier losses and climbed into positive territory after the meeting, extending gains as Fed Chair Jerome Powell struck an upbeat tone in a news conference and expressed willingness to raise interest rates as necessary to control inflation.

“The economy no longer needs increasing amounts of policy support,” said Powell, contrasting the near-depression conditions at the onset of the coronavirus pandemic in 2020 with today’s rising prices and wages and rapid improvement in the job market.

But the Fed was not the only game in town. The ECB, BOE, as well as the Swiss National Bank and Norges Bank will hold policy meetings later Thursday.

“To some extent the reaction to the Fed might have to wait for what the ECB does, because we’re expecting the contrast between the ECB’s disposition and the Fed’s will be laid bare later tonight and that could probably be a catalyst for the U.S. dollar to push through the highs overnight,” Atrill added.

ECB officials are set to call time on the central bank’s Pandemic Emergency Purchase Program but investors will look to see how the six-year old Asset Purchase Program may pick up the slack, though rate rises are a way away.

The euro was last at $1.1282.

The Aussie dollar edged higher to $0.7177 after jobs data came in well above expectations, seemingly more significant for markets than Australia’s top central banker saying he thought it unlikely interest rates will need to rise in 2022.

The pound rested at $1.1326 ahead of a meeting in which the BOE is trying to both hose down inflation and address concerns about an economy already worried about the looming fast-spreading omicron variant of Covid-19.

Data on Wednesday showed UK inflation surged to 5.1% in November, its highest in more than 10 years, the same day the country recorded its highest daily coronavirus cases since the start of the pandemic.

Bitcoin also rallied on Wednesday to $49,000.

Aussie buoyant, dollar listless as omicron optimism lifts risk assets

The Australian dollar hit its strongest level in a week on Wednesday amid a pick-up in risk appetite on signs omicron may be less severe than other Covid-19 variants, but still vulnerable to existing vaccines.

The Aussie rose to $0.7124 for the first time since Dec. 1, and traded at 80.80 yen, not far from Tuesday’s one-week top at 80.93.

British drugmaker GSK said on Tuesday its antibody-based Covid-19 therapy with U.S. partner Vir Biotechnology is effective against all mutations of the new omicron coronavirus variant.

Meanwhile, the Reserve Bank of Australia said omicron was not expected to derail the country’s economic recovery.

Investors had already cheered comments from the weekend that cases in South Africa — where the omicron strain was first identified — showed milder symptoms, with the top U.S. infectious disease official, Anthony Fauci, adding “it does not look like there’s a great degree of severity” so far.

For the week, Australia’s currency is up 1.71% against the greenback, setting up its best performance in three months. It has rallied 2.28% versus the yen, on track for its best week since mid-October.

“Markets continue to travel with a good deal of optimism that Omicron will not have the severity of prior variants in terms of health outcomes, even if it is more transmissible,” Ray Attrill, head of FX strategy at National Australia Bank, wrote in a client note.

That’s put risk asset markets in “ebullient mood,” lifting stocks, commodities, as well as riskier commodity-linked currencies including the Australian and Canadian dollars, he said.

The Canadian dollar traded at C$1.2645 per greenback, near the two-week high at C$1.2635 set overnight.

The Bank of Canada decides policy later on Wednesday, and while economists expect no change at that meeting, they forecast rate hikes as early as the middle of next year in a recent Reuters poll.

The British pound recovered a bit of composure, consolidating around the middle of this week’s trading range this week at $1.32415.

The euro edged 0.05% higher to $1.12735, after touching its lowest since Nov. 26 at $1.1228 in the previous session.

The dollar index, which measures the greenback against six major peers, was little changed at 96.269, treading water in the middle of its range over the past 2-1/2 weeks.

The JOLTS report on U.S. job openings due later Wednesday should provide further evidence of a tightening labour market, potentially adding fodder for bets on earlier Fed tightening, which could boost the dollar.

Money markets are currently fully priced for a quarter point rate increase by June.

Dollar ticks up as Treasury yields partly claw back fall

The dollar ticked higher on Monday as Treasury yields rose off last week’s 2-1/2-month lows following news that initial observations suggested those suffering from the Omicron COVID-19 strain only had mild symptoms.

The Omicron news from South Africa helped reverse some of the moves from Friday, when Wall Street had sold off heavily.

That selloff had taken 10-year Treasury yields below 1.4% for the first time since late-September and boosted the safe-haven yen and Swiss franc. The dollar had tumbled as much as 0.4% lower against the Japanese currency. .

Friday’s greenback losses also followed a below-forecast jobs report, though the data did little to shake market expectations the Federal Reserve will accelerate the pace of unwinding stimulus and raise interest rates starting next year.

The dollar index inched 0.10% higher at 96.29, within range of November’s 16-month peak of 96.938. It was also 0.2% higher against the yen at 113.05 yen and rebounded 0.4% to the franc.

“The dollar is capitalising on the narrative of the Fed sticking to its plans for quicker tapering, which is what we had last week from (Fed Chair Jerome) Powell,” said ING Bank FX strategist Francesco Pesole.

Dollar long positions climbed for a second straight week to the highest since June 2019, according to data from the U.S. CFTC, while bearish euro positions rose to stand at the highest since March 2020.

The euro slipped a quarter percent to the dollar.

Pesole said a further dollar long build-up was likely, given diverging policy expectations, especially against the euro.

Meanwhile, the Australian dollar was up 0.5% to $0.7035, scraping itself off a 13-month low. The kiwi rose 0.1% to $0.6750.

Riskier currencies were also supported by a slight re-steepening of the Treasury yield curve, where the gap between two and 10-year yields widened slightly after touching the narrowest in a year on Friday.

Analysts reckon the curve will flatten further, however, especially if inflation data due later in the week reinforces policy tightening expectations from the Fed.

“If you look at the shape of the yield curve, the flattening of the 2-10 segment normally brings some underperformance in commodity currencies,” Pesole said.

Elsewhere, cryptocurrencies nursed big losses from a wild weekend that at one stage crushed bitcoin more than 20%. Bitcoin found support around $49,000 on Monday.

Dollar steadies, risk currencies recover from omicron-driven drop

The dollar steadied on Wednesday and risk appetite recovered somewhat, but euro-dollar volatility remained elevated as investors weighed up hawkish comments from the Federal Reserve and risks relating to the Omicron variant.

The dollar rose on Tuesday after U.S. Fed Chair Jerome Powell said that the risk of inflation had increased and signaled the central bank may accelerate its bond-buying taper at its meeting later this month.

At 1147 GMT, the dollar index was little changed overall on the day at 95.940. In November, it had its strongest month since June.

Global stock markets and riskier currencies recovered some of the previous session’s losses as investors bet that the Omicron variant – which has prompted countries to impose new travel restrictions – would not derail the economic recovery.

But in currency markets, volatility remained elevated. One-month euro-dollar volatility gauges hit their highest so far this year on Monday.

ING strategists wrote in a client note that euro-dollar volatility has jumped as the Omicron variant is seen as positive for the euro (because it could slow the Fed’s tightening), while Powell’s remarks (suggesting inflation is the Fed’s primary concern) are seen as negative for the euro.

“Both themes will be fed many fresh inputs over the next four weeks and thinning liquidity conditions point to bumpy conditions in FX markets,” ING said.

The euro was down 0.1% on the day at $1.1322 at 1201 GMT .

On Tuesday, a warning from drugmaker Moderna that existing vaccines are unlikely to be as effective against the Omicron variant as they are against other strains, led to a surge of interest in safer assets.

Later, BioNTech’s chief executive struck a cautiously positive note, saying the vaccine it makes in a partnership with Pfizer would likely offer strong protection against severe disease from Omicron.

Sterling, considered a risk currency, was up 0.2% at $1.33175, after fears about whether the vaccine will work against the Omicron variant saw it fall to its lowest level since December in the previous day.

The Australian and New Zealand dollars also made gains, carrying them up from one-year lows, after losses last week and on Tuesday. The Aussie was up 0.3% at $0.7149 and the kiwi was up 0.3% at $0.6842.

The Chinese yuan, a beacon of resilience in a turbulent few days, touched a six-month high of 6.3596 per dollar after better-than-expected manufacturing data from November.

In cryptocurrencies, bitcoin was up around 0.5% at $57,266.93.

Dollar dives, yen jumps on Moderna CEO’s Omicron warning

The dollar slid against its rivals and the yen headed back towards more than two-week highs on Tuesday after Moderna’s CEO said Covid-19 vaccines are unlikely to be as effective against the Omicron variant as they have been with other types.

Risk appetite took a beating across world markets with the greenback weakening 0.3% versus its rivals while the Japanese yen climbed 0.4% versus the dollar to its highest levels since early November at 112.95 yen.

“Market participants’ fears over a more disruptive outcome for the global economy have been reinforced overnight by comments from Moderna Inc. CEO,” Mizuho strategists said in client note.

U.S. Treasury yields fell 6 bps to their lowest levels in two weeks, yanking the greenback lower as markets took the view that a prolonged fight with the virus would undermine expectations of how quickly the Fed will raise interest rates in 2022.

In a sign that European markets are set for a choppy session, the Swiss franc rose to a two-week high versus the U.S. dollar while it held within a striking distance of a July 2015 low against the euro.

“There is no world, I think, where (the effectiveness) is the same level we had with Delta,” Moderna Chief Executive Stéphane Bancel told the Financial Times in an interview.

The Australian dollar slid 0.65% to a new 12-month month low of $0.7093, and the New Zealand dollar lost 0.6% to $0.6783 after the interview was published, heading for its worst month since May 2015.

A bounce in the euro currency looked set to run out of steam before the latest data on euro area consumer prices for November.

The single currency slumped to a nearly 17-month trough of $1.11864 last week as ECB policy makers stuck to their dovish stance in the face of heated inflation.

Prior to Omicron’s arrival, the main driver of currency moves was how traders perceived the different speeds at which global central banks would end pandemic era stimulus and raise interest rates as they looked to combat rising inflation without choking off growth.

Dollar reigns as hawkish Fed stands out among central banks

The U.S. dollar traded at its highest in over a year to the euro and near a five-year high against the yen as a hawkish tilt by Federal Reserve policymakers, buoyed by strong U.S. data, contrasted to more dovish monetary outlooks in Europe and Japan.

The dollar index, which measures the greenback against six major peers, eased slightly to 96.759, but still hovered close to Wednesday’s high of 96.938, the strongest level since July 2020.

Various Fed policymakers said they would be open to speeding up the taper of their bond-buying program if high inflation held, and move more quickly to raise interest rates, minutes of the central bank’s Nov. 2-3 policy meeting showed on Wednesday.

San Francisco Federal Reserve Bank President Mary Daly also said in an interview with Yahoo Finance on Wednesday that she could see a case being made to speed up the Fed’s tapering of its bond purchases.

Meanwhile, readings on the labor market and consumer spending outstripped economists’ estimates, while inflation continued to heat up.

“The U.S. economy retained its titanium status,” buoying the dollar, Tapas Strickland, a director of economics at National Australia Bank, wrote in a note to clients.

“Slightly hawkish comments from the normally dovish Daly was also a factor.”

The dollar was little changed at 115.355 yen, holding close to the overnight high of 115.525, a level not seen since January 2017.

The euro edged higher to $1.1210, but still traded within sight of the near 17-month low hit on Wednesday at $1.1186 after German business confidence slumped for a fifth straight month.

While the U.S. calendar is mostly empty on Thursday due to the Thanksgiving holiday, minutes from the European Central Bank’s Oct. 28 meeting are due for release.

In a news conference after the monetary authority left policy unchanged at that meeting, ECB president Christine Lagarde said officials had discussed “inflation, inflation, inflation,” but after “a lot of soul-searching” had stuck to the view that inflationary forces will prove transitory.

Lagarde gives a speech at an ECB legal conference later on Thursday, at which board members Frank Elderson and Edouard Fernandez-Bollo will also participate.

Sterling rose 0.12% to $1.3342 after dipping as low as $1.3317 on Wednesday for the first time in 11 months.

Investors remained focused on whether or not the Bank of England will raise interest rates on Dec. 16.

The BOE wrong-footed many investors when it did not lift rates from record lows of 0.1% at the start of the month, following comments from its governor Andrew Bailey in October that policymakers “will have to act” to head off inflation.

Bailey speaks at Cambridge University later on Thursday.

Dollar reigns as hawkish Fed stands out among central banks

The U.S. dollar traded at its highest in over a year to the euro and near a five-year high against the yen as a hawkish tilt by Federal Reserve policymakers, buoyed by strong U.S. data, contrasted to more dovish monetary outlooks in Europe and Japan.

The dollar index, which measures the greenback against six major peers, eased slightly to 96.759, but still hovered close to Wednesday’s high of 96.938, the strongest level since July 2020.

Various Fed policymakers said they would be open to speeding up the taper of their bond-buying program if high inflation held, and move more quickly to raise interest rates, minutes of the central bank’s Nov. 2-3 policy meeting showed on Wednesday.

San Francisco Federal Reserve Bank President Mary Daly also said in an interview with Yahoo Finance on Wednesday that she could see a case being made to speed up the Fed’s tapering of its bond purchases.

Meanwhile, readings on the labor market and consumer spending outstripped economists’ estimates, while inflation continued to heat up.

“The U.S. economy retained its titanium status,” buoying the dollar, Tapas Strickland, a director of economics at National Australia Bank, wrote in a note to clients.

“Slightly hawkish comments from the normally dovish Daly was also a factor.”

The dollar was little changed at 115.355 yen, holding close to the overnight high of 115.525, a level not seen since January 2017.

The euro edged higher to $1.1210, but still traded within sight of the near 17-month low hit on Wednesday at $1.1186 after German business confidence slumped for a fifth straight month.

While the U.S. calendar is mostly empty on Thursday due to the Thanksgiving holiday, minutes from the European Central Bank’s Oct. 28 meeting are due for release.

In a news conference after the monetary authority left policy unchanged at that meeting, ECB president Christine Lagarde said officials had discussed “inflation, inflation, inflation,” but after “a lot of soul-searching” had stuck to the view that inflationary forces will prove transitory.

Lagarde gives a speech at an ECB legal conference later on Thursday, at which board members Frank Elderson and Edouard Fernandez-Bollo will also participate.

Sterling rose 0.12% to $1.3342 after dipping as low as $1.3317 on Wednesday for the first time in 11 months.

Investors remained focused on whether or not the Bank of England will raise interest rates on Dec. 16.

The BOE wrong-footed many investors when it did not lift rates from record lows of 0.1% at the start of the month, following comments from its governor Andrew Bailey in October that policymakers “will have to act” to head off inflation.

Bailey speaks at Cambridge University later on Thursday.

Elsewhere, the risk-sensitive Australian dollar rose 0.17% to $0.7208, lifting off Wednesday’s $0.7185, its lowest level since September.

The New Zealand dollar gained 0.25% to $0.68895, stabilizing after a slide to a three-month low of $0.6856 the previous day, when the country’s Reserve Bank raised the key rate by a quarter of a percentage point to 0.75%, disappointing bulls hoping for a half point increase.