FX Rate News

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.

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.

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.

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.

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.

The dollar index held near 16-month highs on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that U.S. interest rates will rise in 2022.

The euro bounced off 16-month lows, meanwhile, helped by better-than-expected business growth in the region.

Currency markets have been mostly driven in recent months by market perceptions of the different paces at which global central banks reduce pandemic-era stimulus and raise rates.

Powell’s renomination supports the view that the Fed is likely to begin raising rates in mid-2022, after it winds down its bond purchase program.

“Markets perceived the outcome as marginally hawkish, and futures now firmed up expectations for a hike in June from having been skewed toward July,” currency analysts at Brown Brothers Harriman said in a note on Tuesday.

Data on Tuesday showed U.S. business activity slowed moderately in November amid labor shortages and raw material delays, contributing to prices continuing to soar halfway through the fourth quarter.

The dollar index was little changed on the day at 96.461, after reaching a 16-month high of 96.61 in overnight trading.

The euro gained 0.16% against the dollar to $1.1251, after earlier hitting a 16-month low of $1.1226.

The euro had tumbled on Monday as concerns grew over new COVID-19 restrictions in Europe, with Austria entering another full lockdown and Germany considering following suit.

Germany’s health minister has called for further restrictions on public spaces.

The euro has some short-term technical support in the $1.1240 – $1.1180 area, which were the highs reached in October and December 2019, Commerzbank technical analysts Karen Jones and Axel Rudolph said in a report on Tuesday. If it breaks below this area, however, it would likely fall to $1.1000, which is the 78.6% retracement of 2020′s move, they said.

The dollar hit a four-and-a-half year high against the Japanese yen of 115.08 yen.

The greenback hit a seven-week high of C$1.2744 against the Canadian dollar, which was hurt by a slide in oil prices, before dropping back to C$1.2682 as oil prices rebounded.

The United States said on Tuesday it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude.

The kiwi dipped 0.13% to $0.6951 before the Reserve Bank of New Zealand is expected to follow up its October rate hike with another 25-basis-point increase at its review on Wednesday.

Turkey’s lira dived 15% in its second-worst day ever after President Tayyip Erdogan defended recent sharp rate cuts and vowed to win his “economic war of independence” despite widespread criticism and pleas to reverse course.

In cryptocurrencies, bitcoin was trading at around $57,644, up 2.4% on the day. Earlier this month it had hit an all-time high of $69,000. Ethereum gained 6.41% to $4,357.

The dollar index held near 16-month highs on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that U.S. interest rates will rise in 2022.

Currency markets have been mostly driven in recent months by market perceptions of the different paces at which global central banks reduce pandemic-era stimulus and raise rates.

“Markets are taking every USD strength story they can get in this environment, which is visible in the moves after Powell’s widely expected reappointment,” said Ima Sammani, FX market analyst at Monex Europe.

Sammani said the dollar strength was also due to rising front-end U.S. yields, which was likely caused by commentary from Federal Reserve policymakers. They include Atlanta Federal Reserve President Raphael Bostic, who said on Monday that speeding up the tapering of asset purchases could give the Fed more room for rate hikes in 2022.

Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, said that the decision to retain Powell was beneficial for the dollar because it showed President Joe Biden respecting the Federal Reserve’s independence from government.

“Biden has proved to be principled with Monday’s nomination,” he wrote in a note to clients.

At 1135 GMT on Tuesday, the dollar index was at 96.489, little changed on the day and slightly below the 16-month high of 96.603 it reached during Asian trading hours .

Versus Japan’s yen, the dollar rose to its highest in four and a half years, as investors expected U.S. interest rates to diverge from those in Japan.

The Japanese currency is sensitive to moves in U.S. Treasury notes, and two-year U.S. Treasury yields rose 8.5 basis points on Monday to their highest since early March 2020.

The dollar-yen move had eased by 1135 GMT, with the pair flat at 114.865, compared to the peak of 115.160 reached earlier in the session .

The euro was up 0.1% against the dollar at $1.12455, recovering slightly after hitting a 16-month low versus the dollar.

Better than expected euro zone PMI data helped push the euro slightly higher on the day.

However, the euro has lost 2.7% so far this month, hurt by a combination of the European Central Bank’s dovish monetary policy stance and, more recently, a resurgence of COVID-19 cases in Europe.

The World Health Organization warned earlier this month that current transmission rates in 53 European countries are of “grave concern” and Germany’s health minister has called for further restrictions on public spaces.

Turkey’s lira slid to a new record low of 12 versus the dollar . This was its eleventh record low in as many days, after President Tayyip Erdogan defended recent rate cuts and vowed to win an “economic war of independence”.

The Australian dollar was down 0.1% at $0.7218 while the New Zealand dollar was down 0.5% at $0.6923.

The Reserve Bank of New Zealand (RBNZ) is expected to deliver a 25 basis point rate hike on Wednesday, but speculation is rife that the central bank could even go for a 50 basis point increase to counter rising inflationary pressures.

The New Zealand dollar was falling versus the U.S. dollar because investors expect short-dated U.S. yields to rise more than short-dated New Zealand yields.

“The repricing in the curve, based upon the RBNZ forward guidance delivered tomorrow, is likely to be less aggressive than what is currently being priced in the U.S. Treasury curve in the run-up to December’s Fed meeting,” Monex Europe’s Sammani said.

“This dynamic is being priced into NZD today.”

In cryptocurrencies, bitcoin was trading at around $56,300. Earlier this month it had hit a new all-time high of $69,000.

The safe-haven U.S. dollar traded close to a 16-month high to the euro on Monday on growing anxiety over the impact of surging Covid-19 infections in Europe, with Austria reimposing a full lockdown and Germany considering following suit.

The greenback was near its strongest since early October against the riskier Australian and Canadian dollars, with the commodity-linked currencies also pressured by a slump in crude oil.

The dollar got additional support from bullish comments by Federal Reserve officials Richard Clarida and Christopher Waller on Friday who suggested a faster pace of stimulus tapering may be appropriate amid a quickening recovery and heated inflation.

An more rapid end to tapering raises the possibility of earlier interest-rate increases too. Currently the market is priced for the Federal Open Market Committee (FOMC) to start hiking rates by the middle of next year.

The dollar index, which gauges the currency against six major peers, traded at 96.065, staying within sight of last week’s 16-month high of 96.266.

The euro slumped 0.23% to $1.1274, approaching its lowest since July of last year at $1.1250, reached Friday, when it tumbled 0.66%.

“EURUSD has been in free-fall and will likely get the lion’s share of attention from clients looking for a play on growing restrictions and tensions across Europe,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients.

“For momentum, trend followers and tactical traders, short EUR remains attractive here.”

Europe has again become the epicenter of the pandemic, accounting for half of global cases and deaths.

A fourth wave of infections has plunged Germany, Europe’s largest economy, into a national emergency, Health Minister Jens Spahn said, warning that vaccinations alone will not cut case numbers.

Austria becomes the first country in western Europe to reimpose a full Covid-19 lockdown from Monday.

Worries that a slowdown in Europe could hit energy demand dented crude oil, which was also in retreat over the prospect of a U.S.-led release of emergency stockpiles.

The dollar added 0.21% against the oil-linked Canadian loonie to C$1.26575, closing in on Friday’s high at C$1.2663, the strongest level since Oct. 1.

The Aussie eased slightly to $0.7234, and earlier dipped as low as $0.72285, the cusp of a low since Oct. 6.

“We expect AUD to remain heavy in the near-term (and) a dip to $0.70 is possible,” with a slowing Chinese economy and the Reserve Bank of Australia’s dovish policy stance dragging on the currency, Joseph Capurso, a strategist at Commonwealth Bank of Australia, wrote in a report.

Meanwhile, “USD can extend its recent rally this week and set a fresh 2021 high,” he said. “Another round of strong U.S. inflation can further propel market pricing of FOMC rate hikes and the USD.”

The dollar was largely flat against fellow safe-haven the yen, changing hands at 114.03 yen per dollar, in the middle of its range over the past week and a half.

In crypto, bitcoin traded around $58,100, consolidating after its retreat from an all-time high at $69,000, marked earlier this month.

The dollar held just below a 16-month high versus the euro on Tuesday, while the yuan reached its strongest in more than five months as markets welcomed dialogue between the U.S. and Chinese presidents.

U.S. President Joe Biden and Chinese leader Xi Jinping stressed their responsibility to the world to avoid conflict, in talks which gave Asian currencies a lift overnight. But support for riskier currencies ebbed somewhat as the talks did not appear to lead to any particular breakthrough.

The dollar hit a five-month low against China’s offshore yuan overnight, at 6.3615, and the pair was still down around 0.1% on the day at 0850 GMT, at 6.3767.

But the Australian dollar — seen as a liquid proxy for risk appetite — had lost its overnight gains by early European trading, down 0.1% on the day at $0.73425.

The dollar index was a touch lower at 95.446, having rallied to its highest in 16 months after U.S. inflation data last week showed consumer prices surged to their highest rate since 1990, fueling speculation that the Federal Reserve may raise interest rates sooner than expected.

Investors are waiting for U.S. retail sales data due later in the session, which could also influence the outlook for interest rates.

The euro was little changed on the day, having extended recent losses on Monday after dovish comments from European Central Bank President Christine Lagarde.

Lagarde said that tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery, comments which were viewed as pushing back on calls and market bets for tighter policy.

“Even if lower-than-consensus economic data are released this afternoon in the U.S., including retail sales and industrial production, we doubt that this is likely to alter the scenario now that selling EUR-USD into rally remains favored,” UniCredit strategists wrote in a client note.

Analysts also said that rising COVID-19 cases in Europe were hurting European currencies including the euro.

On Monday Austria imposed a lockdown on unvaccinated people, while Germany’s parliament is due to vote on Thursday on stricter measures to deal with surging cases. France, the Netherlands and many countries in Eastern Europe are also experiencing a surge in infections.

“The fear that the situation could escalate and result in a more significant tightening of restrictions in the coming months is hurting sentiment towards European currencies,” MUFG currency analyst Lee Hardman said in a client note.

The British pound was up 0.4% against the dollar at $1.3467, having risen after data showed British employers hired more people in October after the government’s job-protecting furlough scheme ended.

The Swedish crown was up around 0.2% against the dollar at 8.789. Swedish headline inflation hit its fasted pace since 2008 in October, data on Monday showed.

“We assume that the Riksbank will call the rise in inflation temporary at its meeting next week,” wrote Commerzbank FX and EM analyst You-Na Park-Heger in a client note.

Elsewhere, the cryptocurrency bitcoin was down around 4.5% on the day, at $60,750.

The euro was huddled at a 16-month low on Tuesday while the dollar was firm as traders awaited U.S. retail sales data, wary a strong reading could stoke inflation and add pressure on the Federal Reserve to hike rates.

Talks between U.S. President Joe Biden and his Chinese counterpart Xi Jinping during the Asia session are also likely to set the tone in financial markets, and currency moves were slightly ahead of any outcome from the discussion.

The yuan was steady at 6.3812 per dollar offshore.

Overnight the euro had crumbled below $1.14 for the first time since July last year amid concerns about Covid-19 outbreaks and as Europe’s central bank chief pushed back against the need to act to tame inflation.

The common currency steadied at $1.1361 after falling as far as $1.1356 on Monday and the drop helped the U.S. dollar index to a 16-month high of 95.595. The dollar was also firm against the yen overnight and broadly steady elsewhere.

It last bought 114.14 yen while the euro sat near the one-month low of 129.64 yen it touched on Monday.

“If we were to take any tightening measures now, it could cause far more harm than it would do any good,” European Central Bank President Christine Lagarde had told European Union lawmakers, a contrast with hawkish hints from elsewhere.

“We expect the cautiousness of the ECB on policy to limit recovery prospects for the euro against the dollar in the coming months,” said Rabobank senior FX strategist Jane Foley.

“Our current mid-2022 forecast of EUR/USD at $1.14 is looking outdated … we will be revising our forecasts later in the week.”

The gulf in tone across the Channel sent the euro on its steepest slide against the pound in six months as Bank of England Governor Andrew Bailey told a parliamentary committee he was “very uneasy” about inflation.

Canada’s central bank chief Tiff Macklem was even more forthright and said “we are getting closer” to rate hikes in a Financial Times opinion piece, driving the Canadian dollar to a four-and-a-half year high against the euro.

Ahead of U.S. retail sales data due at 1330 GMT Australia is in focus with Reserve Bank of Australia (RBA)Governor Philip Lowe making a speech on inflation.

Hawkishness would be a surprise after minutes from this month’s meeting showed the bank still expects it will keep rates on hold at record lows until 2024 even though it acknowledged upside risks on inflation.

“The risks are tilted towards AUD/USD weakness today given the large gap between market pricing for rate hikes in 2022 and RBA rhetoric,” said Commonwealth Bank of Australia analyst Joe Capurso.

The Aussie was last hovering at $0.7346, just below its 50-day moving average of $0.7362. The kiwi is awaiting a Reserve Bank of New Zealand meeting next week and was steady at $0.7040.

Sterling sat at $1.3411.

The U.S. consumption data follows a surprisingly weak consumer sentiment reading last week and an unexpectedly strong Empire State business conditions survey, which had lifted Treasury yields overnight.

It is forecast to show sales accelerating.

“In our view, the forecasts point to decent data, which following last week’s acceleration in the U.S. CPI could increase bets over a hike by the Fed as soon as the tapering process is over,” said Charalambos Pissouros, head of research at JFD Group in Cyprus in a note to clients.