New Omicron Variant Less Worrying, Currency Value Expected to Stabilize
ZFX - USD moved sideways on Tuesday above a one-week low against its peers last week as concerns eased that the new Omicron coronavirus variant would derail recovery and delay the Federal Reserve's rate hike.
The safe-haven Yen was steady for about half a percent from its strongest level since the Nov.11 hit on Monday. Euro meandered about a third of a percent below Monday's one-week high.
The risk-sensitive Australian Dollar is hovering around 0.4% from a three-month low.
Traders took comfort in President Joe Biden's statement that the United States would not reimpose a re-lockdown, as well as comments by South African doctors that the new strain was causing milder symptoms.
In testimony prepared for Congress last Tuesday, Federal Chairman Jerome Powell said the Omicron variant could cause the inflationary pressure to last longer.
That could potentially hasten the need for a rate hike, whereas traders initially reacted to Omicron's findings by pushing back bets for the Fed's tightening move due to risks to growth.
Currency markets currently see a good opportunity for a first rate hike in July but prices aren't fully set until September.
At the same time, the World Health Organization warned of a "very high" risk of a spike in infections from Omicron and countries around the world have reacted quickly to tighten border controls.
"Omicron's less dire valuation has allowed (the dollar index) to recover some of its losses," but "the somewhat disappointing bounce in global markets suggests that there is still a high level of concern about the Omicron variant," Westpac strategists wrote in a research note.
Continued strength in the US economy should support the greenbacks and experts speculators, while the Aussie continues to look weak and a break below $0.7106 "seems only a matter of time."
The dollar index, which measures the currency against six major rivals, last traded at 96.123, up from a low of 95.973 from Friday, when it had its biggest one-day decline since May.
The greenback was up 0.24% to 113.80 Yen, after dropping to 112.99 on Monday.
The Australian Dollar edged up to $0.7146, extending its recovery from Friday's low of $0.71125.
The Euro was almost flat at $1.12955, from Monday's high of $1.1335.
The single currency has slumped to a nearly 17-month trough of $1.1186 as European Central Bank policymakers remain on their dovish stance in the face of warming inflation. The latest reading on the Euro area consumer prices will be released next Tuesday.
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