US Dollar struggling due to omicron concerns
The US dollar is considered the world’s reserve currency and enjoys a great deal of popularity in every market. Therefore, it is was concerning that the greenback was on the defensive on Thursday against some major currencies because investors were fretting about the quick-spreading newly-discovered Omicron variant of the coronavirus. The first case of the new coronavirus variant was discovered in the United States and there were also concerns about the speed at which the tapering program of the US Federal Reserve would move, all of which obviously weighed on the US dollar.
However, it is important to note that the losses of the US currency appeared to be limited, primarily because investors had shifted their focus towards the non-farm payrolls report that will be issued on Friday for the month of November. According to market analysts, there is a possibility that the dollar could move higher because of the big employment print. But, they added that the impact on the release of the final non-farm payroll had been muted because of the concerns surrounding the Omicron variant and ahead of the tapering announcement of the Fed in December. On Wednesday, the US had recorded its first case of the Omicron variant and this ended up weighing on the stocks trading market as well.
On Thursday, Germany and the United States also joined the list of countries all over the world that were planning to impose stricter restrictions for COVID-19. Tracking the currency against six other major currencies, the dollar index had declined by 0.2% in mid-morning trading on the day to reach 95.895. Last week, the index had fallen lower when news of the Omicron variant in South Africa had first emerged, even though it was still near a 16-month high it had reached in the previous month at 96.938. Currency analysts said that even though the dollar had declined against the Swiss franc, sterling, and the euro, it should be noted that these currency pairs have seen some very tight ranges recently.
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They also highlighted that there wasn’t any further downside in the dollar/yen currency pair, which indicated that the broad US dollar move seen today was not a clean risk-off move. The dollar did manage to trim some of its losses after data revealed that initial claims made for state unemployment benefits were lower than the forecasted 240,000. The claims had risen 28,000 for the week ended November 27th, as they were seasonally adjusted to 222,000. There was a 0.2% increase in the dollar against the yen to reach 112.89.
The euro had climbed by 1% to reach a value of $1.1335. Analysts said that euro seems to be regarded as a semi-haven currency, but there will be some weakness in the currency when it reaches the $1.10/11 zone. This is primarily because of weak rates and economic fundamentals, but it will remain in the $1.12-$1.14 range for now because of the uncertainty brought on by the virus. However, currency volatility trackers and other trading software is still at multi-month highs, which hints that there could still be some big moves in store.
Moreover, traders are also keeping an eye out on how quickly the Federal Reserve will decide to taper of its bond purchases, with central banks all around the globe trying to figure out how quickly to unwind the stimulus in order to combat soaring inflation. Jerome Powell, the chairman of the Fed, appeared in front of the Congress on Wednesday for testifying and reiterated that the policymakers would consider taking swifter action at their meeting scheduled for December 14th to December 15th.
Meanwhile, Sterling saw an increase of 0.2% to reach a value of $1.3312. Before the news of the Omicron variant, the US dollar had been enjoying solid highs against the yen, but the discovery of the new variant has upset the markets significantly. The financial markets, as a whole, have seen massive sell-offs and there is still uncertainty.
