US Open Note – Resilient dollar rebounds in calmer markets



Greenback shrugs off new virus scare, market sentiment bounces back

The calmer markets today seem to have brushed off the shock linked to the new omicron variant that hit global equity markets on Friday. Despite markets rapidly regaining their composure, risk aversion may linger moving towards the end of the year, as not much has been proved about the new strain of the virus.

That said, the World Health Organisation (WHO) aided markets by reiterating that the current symptoms connected to the new variant have been mild, and on another note, it is unlikely that the new strain will derail the Fed’s tightening plans.

With this week’s focus set around Fed Chair Powell’s speech, the NFP jobs report and ISM manufacturing and services PMI’s, stronger results could be a booster for the dollar towards year end, especially as the 2-year yield differential starts to shift in favour of the dollar again.

The US will also report October pending home sales at 15:00 GMT, which are forecast to come in at 0.8% m/m, stronger than September’s figure of -2.3%.

The dollar index managed to dismiss the lasting effects from Friday’s omicron-related selloff, recouping some lost ground after finding its feet around the 96.00 mark. It is currently trading around 96.18. USD/JPY established a foothold around the 113.00 mark and has ticked higher after market sentiment has stabilized from Friday’s shock. The pair is currently trading at 113.50. The swissie is also trading higher at 0.9240 after the plunge near 0.9200 on the back of dollar strength.

Europe and the UK

The euro’s bullish forces seem feeble as they have struggled to keep the common currency above the $1.1300 handle, receiving little aid from some stronger results in European November CPI figures. Spain reported stronger inflation at 5.6% y/y, while Germany’s annual EU-harmonized figure clocked in at 6.0%. The ECB seems to be unintimidated by the new strain of the virus and any change to the policy outlook is likely to be minimal.

The pound appears somewhat sluggish, unable to surge above $1.3360. The UK has not imposed any new work restrictions but all travellers arriving in the UK now must take a PCR test and isolate until cleared with a negative result.

The UK’s September mortgage approvals have dropped to 67K from October’s 72K, but consumer confidence remained strong in October, which could encourage BoE policy makers that the UK economy can cope with a hike in December. Despite economic uncertainty related to the new strain of the virus, BoE comments seem skewed towards tightening in the coming months.

Oil hurts the loonie

WTI oil is currently trading around the $72.40 level after finding its feet around the $68.00 per barrel mark, following one of the biggest intraday plunges. The drop was linked to demand risks associated with the new omicron variant, despite the expected responses from OPEC and oil producing nations. It will be interesting to see what stance OPEC takes when it gathers on Wednesday.

The USD/CAD pair as a result ticked close to the C$1.2800 mark before steadying back around the C$1.2750 range. Canada’s current account surplus of 1.4bln did little to aid the Canadian dollar as did the October industrial product price index (IPPI) and raw materials price index (RMPI), which beat expectations coming in at 1.3% and 4.8%, up from September figures of 1.2% and 2.4% respectively.

ECB President Lagarde is due to speak at 17:15 GMT, while BoC Governor Macklem is set for 19:00 GMT.

FOMC Member Williams is scheduled at 20:00 GMT and Fed Chair Powell at 20:05 GMT.

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