CAPITALFIELD, MARKET REVIEW, 13TH DECEMBER 2021.
MONDAY 6/12/2021 – DOLLAR UP AGAINST SAFE HAVENS AS RISK SENTIMENT IMPROVES ON OMICRON NEWS
The dollar edged higher against safe-haven currencies such as the yen and Swiss franc after reassuring news on the Omicron COVID-19 variant, while units like the Australian dollar that had weakened in recent weeks on growth worries also advanced. U.S. Treasury yields rose and stocks gained after news that initial observations suggested Omicron patients had only mild symptoms, reversing some of Friday’s heavy selloff. While Omicron has spread to about one-third of U.S. states as of Sunday, Dr. Anthony Fauci, the top U.S. infectious disease official, told CNN that “thus far it does not look like there’s a great degree of severity to it.” “The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note. The dollar climbed 0.3% against the Japanese yen and rose 0.6% against the Swiss franc. The yen and the franc typically draw investors looking for safety when economic or geopolitical tensions rise. The dollar fell 0.3% against the Japanese currency on Friday. =USD JPY=EBS . The greenback’s losses on Friday had also followed a below-forecast jobs report, though the data did little to shake market expectations the Federal Reserve will accelerate the pace of unwinding stimulus and raise interest rates, starting next year. The U.S. Dollar Currency Index =USD , which measures the greenback against six rivals, was 0.0% higher at 96.228, not far from the 16-month high of 96.938 touched late last month.
TUESDAY 7/12/2021 – STERLING REMAINS NEAR 2021 LOWS VS DOLLAR, RATE HIKE BETS IN DOUBT
Sterling was pinned near 2021 lows against the U.S. dollar while it drifted higher against the euro on Tuesday thanks to a broadly sturdy greenback and growing expectations that the Bank of England will keep interest rates unchanged next week. In a research note late on Monday JP Morgan said it thinks the central bank will buy more time because the emergence of the Omicron coronavirus variant has introduced new uncertainty over the timing of the first tightening of monetary policy, which could now start as late as February. Money markets are assigning a 54% probability of a 15 bps rate hike next week, down from nearly 70% probability two weeks ago. The dollar index was steady and riskier currencies picked up as traders bet that the Omicron variant would not be as severe as previously expected. Sterling was down 0.1% against the dollar after hitting a session’s low at $1.321, not far from last week’s 2021 low below $1.32. Against the euro, the pound was up 0.15%, hitting its highest in almost a week at 84.895 pence. If the Bank of England does end up raising interest rates on Dec. 16, it could trigger a squeeze on sterling short positions.
WEDNESDAY 8/12/2021 – STERLING HITS NEW 2021 LOWS ON NEW COVID RESTRICTION REPORTS
The British pound fell to a new 2021 low against the U.S. dollar on Wednesday as expectations that the Bank of England will raise interest rates next week waned amid reports tougher restrictions against COVID-19 were in the offing. Britain could implement tougher COVID-19 measures, including advice to work from home, as early as Thursday in a bid to slow the spread of the emergent Omicron variant of the coronavirus, according to media reports. Money markets are now assigning only a 46% probability of a 15 bps rate increase next week, down from 58% before the news and down from nearly 70% probability two weeks ago. The Bank of England may hold off again next week on becoming the world’s first big central bank to raise interest rates from their pandemic lows due to the spread of the Omicron strain. “The imposition of these restrictions – which are, we think, only a relatively small tightening of limits – is likely enough to keep the BoE from hiking next week as they will prefer to wait until the February meeting,” Scotiabank strategists said. Against the dollar, the pound slumped 0.5% to its lowest levels since December 2020 at $1.3162. Versus the euro , the pound weakened 0.7% at 85.34 pence. The U.S. Federal Reserve meets next week, with policymakers flagging in the run-up that an increase in the pace of stimulus tapering is likely, which would set up the possibility of earlier rate rises.
THURSDAY 9/12/2021 – DOLLAR RETREATS AS OMICRON WORRIES EASE; AUSSIE RISES
The dollar fell against several of its major counterparts on Wednesday, as easing concerns about the economic hit from the Omicron COVID-19 variant helped support riskier currencies, with the Australian dollar on pace to notch a third straight session of gains. The dollar index, which measures the greenback against six major peers, slipped 0.4% to 95.854. The index remains close to the 16-month high hit late last month. “Concerns about Omicron appear to be fading slightly, particularly as increasing – albeit unconfirmed – data emerges pointing to infections caused by the new variant being milder than previously thought,” Michael Brown, senior analyst at payments firm Caxton, said in a note. Investors’ appetite for riskier assets improved this week amid reports that people infected with the Omicron variant in South Africa had only shown mild symptoms. Preliminary evidence indicates that the new variant likely has a higher degree of transmissibility but is less severe, top U.S. infectious disease expert Anthony Fauci said on Tuesday. Commodity-linked currencies, including the Australian dollar, were the main beneficiaries of the improved risk sentiment. The Aussie dollar was 0.8% higher at $0.7177, its highest level in a week.
FRIDAY 10/12/2021 – DOLLAR GAINS AHEAD OF INFLATION DATA, YUAN STEADIES
The dollar rose on Friday as traders prepared for U.S. inflation figures scheduled later in the day that could cement the course of interest rate rises next year, while the Chinese yuan regained its footing after a big tumble in the previous session. The euro, seen as vulnerable to a Federal Reserve hike especially if European rate rises lag, dropped 0.4% on Thursday and was down another 0.2% in mid-session European trading to $1.1269, not far from its 2021 low of $1.1186. The dollar index gained 0.2% to 96.412 and was headed for its seventh consecutive weekly rise ahead of the data, which is due at 1330 GMT. If U.S. inflation hits Reuters poll expectations of 6.8% then it would be the highest since 1982, and any upside surprise will be interpreted as a case for a faster Fed taper and rate rises. U.S. consumer confidence data is also due on Friday, and if it holds up could portend more price pressures ahead. Jim Reid, a strategist at Deutsche Bank, said hawkish comments recently pointed towards tighter policy and added that for inflation numbers, “the bar is extremely high for today’s data print to alter their (policymakers’) course, especially with the Covid outlook having not deteriorated markedly since his (Chair Jerome Powell’s) testimony.”