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Market News
US Dollar in the Spotlight as Central Banks Head into a Busy Week

US Dollar in the Spotlight as Central Banks Head into a Busy Week

13-12-2021 09:48

ZFX - After a solid week with central bank meetings, the US dollar climbed higher and higher. The meetings included the one that was held at the Federal Reserve which are expected to increase currency markets' performece and boost the dollar upwards, despite creeping worries of the new COVID-19 variant.

The pound lost 0.16% to $1.3257 after British Prime Minister Boris Johnson said on Sunday that Britain was facing a "tidal wave" of the Omicron coronavirus variant and that the double vaccine doses would not be adequate to control it.

The euro slipped 0.17% to $1.1292, while the US dollar rose 0.1% against the yen to 113.5.

Despite this, having the movements compared to a fortnight ago as the new variant emergence swung movements of the currency and other major asset classes wildly, they've been rendered moot.

Even though the Omicron scare was just that, a scare, investors quickly moved to to safe-haven assets, causing these movements to retract last week.

An important agenda for the currency markets this week is the central bank policy meeting that will have the six G10 central banks and a whole collective of emerging market central banks meeting with each other.

"Central banks need to strike a delicate balance between the uncertainty caused by Omicron and rising inflation rates," said Barclays analysts.

The most important meeting is the Federal Reserve's two-day meeting which ends on Wednesday. Investors now expect the Fed to signal a faster cut in asset purchases this week, and thus be able to raise rates early.

Later this week, both the Bank of Japan and the European Central Bank will go through their policy settings. Also, Norway and Switzerland, and England's central banks will meet to discuss matters concerning economic impacts of the new COVID-19 variant, all before raising interest rates.

Bitcoin is trading just under $50,000, down 2% on the day after rising over the weekend. But the world's largest cryptocurrency, it still has a lot of obstacles to reclaim its November record high of $69,000.

DXY Technical Analysis
Graph taken from TradingView

From a technical perspective, DXY or the dollar index is observed to be in a general bullish trend. Strengthened by its movement far above the 50, 100, and 200 MA on the daily chart.

However, it is currently in a tight ranging area between the 95,942 and 96,314 areas. The Fed meeting will be an important agenda item and can be a good catalyst for DXY to pass through that area.

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