US Dollar Mixed Amidst Threat of Omicron Spread

US Dollar Mixed Amidst Threat of Omicron Spread

The US dollar was mixed against its major trading partners early Monday to start the week, gaining ground against European currencies, but still down sharply against the yen due to risk-aversion.

This week, markets will be focused on rising COVID-19 cases in Europe, the new omicron variant in Africa and Friday’s upcoming November US employment report. Last week, the dollar index had dropped off.

The data schedule starts out light Monday with the release of October pending home sales data and regional manufacturing data for November from the Dallas Federal Reserve Bank.

Fed Chairman Jerome Powell, Fed Governor Michelle Bowman and New York Fed President John C. Williams speak later in the day. There are several appearances by Powell and other Fed officials this week, as well the release of the Beige Book on Wednesday, ahead of the quiet period that begins Saturday.

Headlines will focus on any statements from the officials that the omicron variant could impede economic progress and alter the Fed’s tightening plans.

Powell and Treasury Secretary Janet Yellen testify Tuesday and Wednesday on the Fed’s and Treasury’s handling of the COVID crisis, so the new wave is almost certain to be a topic of discussion. Also expect there to be praise, or lack thereof from some, for Powell’s reappointment as Fed chair.

A quick summary of foreign exchange action heading into Monday shows EUR-USD slipped to 1.1291 from 1.1325 at Friday’s peak but remains above the 1.1195 low seen last week before news of the omicron variant spread.

Rising COVID-19 cases in Europe, including some of the omicron strain confirmed in Germany and Portugal, are a headwind for economic growth and will keep the European Central Bank behind the Fed and Bank of England in monetary policy tightening despite inflation pressures.

Final Eurozone consumer confidence, released earlier Monday, declined for the second straight month in November. GBP-USD slipped modestly to 1.3346 from 1.3358 at Friday’s closing point and was down sharply from 1.3437 a week ago.

Markets still see the chance of a rate increase by the Bank of England in December, but the odds are shifting more toward early in 2022 due to the uncertainty of the omicron variant and the confirmed presence of cases in continental Europe.

USD-CAD fell to 1.2748 from last week’s peak of 1.2801 that was reached late on Friday but remains well ahead of the 1.2638 level a week ago.

The US dollar was lifted by a flight-to-quality after news of the new variant spread, while lower oil prices continue to weigh on the Canadian dollar. There are no Canadian data or Bank of Canada speakers scheduled for Monday.

USD-JPY found some footing, improving modestly to 113.5803 from last week’s low of 113.1707, but the pair is well below the 115.4255 high early last week. Risk-aversion, fueled by news of the omicron strain, boosted the yen to the detriment of other currencies, including the dollar.

In addition, Japanese retail sales data released earlier Monday were upbeat, with the notable exception of auto sales. # US Dollar Mixed Amidst Threat of Omicron Spread Read Also: FOREX: US Dollar in a Tight Range as Pairs Consolidate Gains