US Dollar in Demand as Safe Haven as Omicron Sparks Fresh Fears in Markets
The US dollar has found its strength at the start of a fresh trading week, trading at highs not seen since July 2020 against other major currencies on rising expectations that the Fed could implement a rate hike soon. At the time of writing, the US dollar index DXY is trading at around 96.61.
The dollar index surged close to the highest levels seen in a month after Fed Governor Chris Waller indicated that the US central bank could consider announcing its first rate hike “shortly after” ending its bond purchases in March 2022. Waller’s comments reinforced investors’ hopes for the Fed to hike interest rates by summer next year, sending the reserve currency higher.
Last Friday, NY Fed President John Williams had also suggested that the Fed could gain “optionality” to increase interest rates after winding down bond purchases by next March. So far, money markets have priced in a 50% likelihood of a 0.25% increase in interest rates by March 2022.
Meanwhile, the Euro is experiencing strong bearish moves after the Netherlands announced a lockdown on Sunday. The rapid spread of the Omicron variant is also keeping GBP/USD under pressure after Britain’s health minister hinted that the country could look at imposing more curbs ahead of Christmas as daily cases rise.
The US dollar’s safe haven appeal is also enjoying support over uncertainties about the latest variant of COVID-19. Said to be highly contagious, the WHO observes that the number of cases due to it are doubling at an alarming rate, between 1.5 and 3 days in some parts of the world. In addition, the organization maintains that not much is known about the variant’s impact on people’s health, including its severity, just yet.
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