US Open Note – Markets dive as new Covid variant identified



FX market is bleeding due to new variant; yen shines

After the discovery of a new and possibly vaccine-resistant coronavirus variant in South Africa, Botswana, and Hong Kong, the FX market is posting strong losses and US stock futures are indicating a negative open. Flights from South Africa and other nearby countries have already been temporarily banned by Britain, which was followed by Israel and Singapore, and could lead to similar bans in other countries. The introduction of the new variant comes at a time when different European countries are coping with an increase in cases of the delta variant and have re-imposed social distancing limits in order to keep the spread under control.

The dollar index is posting minor gains, while dollar/yen is dropping sharply below the 114.00 mark after it reached a fresh high of 115.15 earlier in the week. Pound/dollar is recouping some losses but the upside momentum remains weak, while the pound/yen is hovering around the seven-week low of 151.06. Euro/dollar is surprisingly moving higher near 1.1275, following a rebound off 1.1185 on Wednesday as the US 10-year yield has fallen almost 12 bps to nearly 1.5%. The kiwi and the aussie are heading south as well, hitting $0.7110 and $0.6800 respectively. Dollar/loonie is gaining some ground, visiting a two-month high near 1.2770.

Eurozone suspends flights; US remains on the same page

The virus is spreading across the Eurozone, causing anxiety for the winter and the first measure in response to the new mutated strain was to tighten travel curbs today. Meanwhile, Austria has declared a state of emergency for the fourth time and wants to introduce mandatory vaccinations.

With rising vaccination rates and a successful booster campaign in the US, the chances of new lockdowns are slim. The Fed started normalising policy earlier this month by announcing tapering and is anticipated to accelerate the process if the data improves.

Oil tumbles and gold rises

WTI futures are diving around the $72.60/ per barrel, the lowest level in nearly two months, as investors fret about growing demand concerns following the new Covid variant. Gold prices are jumping beyond the $1,800 psychological mark, recouping some of the previous days’ losses.

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