Dollar Slips Ahead of Short US Session on New COVID Strain
The US dollar was slipped against its major trading partners early Friday ahead of the shortened US session as a new COVID-19 strain is causing markets to reevaluate the path of the global economy and central bank policy.
The announcement of a new COVID-19 variant in South Africa and other African countries, with accompanying travel bans, is weighing on risk-taking as some central banks, including the Federal Reserve, are seen pushing back monetary policy tightening.
There are no Fed speakers or major US data scheduled Friday to end the week. A quick summary of foreign exchange action heading into Friday shows that USD-JPY plunged overnight to 113.8822 from 115.3691 at the Thursday North American close, as the discovery of the new COVID-19 mutation pushed markets into risk-aversion, lifting the yen and pushing down the dollar considerably.
While it appears that the new strain is currently limited to Africa, the fear of spread is driving uncertainty. Inflation in Tokyo rose less than expected in November but was still the fastest year-over-year pace since the start of the pandemic, driving some of the declines in the pair.
USD-CAD rose sharply to 1.2764 from 1.2648 at the Thursday North American close and was ahead of the 1.2662 level a day ago, driven by a flight-to-quality than lifted the US dollar and the expectation of temporarily lower oil prices due to the release of strategic reserves in the US pushing down the Canadian dollar.
There are no Canadian data or Bank of Canada speakers scheduled for Friday. GBP-USD remains in a tight range, ticking up to 1.133 from 1.3322 at the Thursday North American close and 1.3316, but has fallen from 1.3454 a week ago.
Both the US and the UK are on track for tighter monetary policy in December in the former of faster asset purchase tapering by the Fed and a rate increase by the Bank of England, but markets are now pricing in these changes slightly later than what was previously expected.
EUR-USD rose to 1.1288 from 1.1209 at the Thursday North American close and was up from 1.1228 a day ago. Rising COVID-19 cases in Europe have prompted travel bans by the US for Germany and Denmark and already pushed down the euro and delayed expectations of monetary policy tightening by the European Central Bank.
As a result, the euro had less to lose from the discovery of the newest African strain of COVID than other major currencies like the dollar, lifting the pair. # Dollar Slips Ahead of Short US Session on New COVID Strain. Read Also: FOREX: US Dollar Slips after Currencies Traders Take Profits