Title: Dollar Edges Higher; Hawkish Fed Helps, While Omicron Hurts Europe

Dec 20, 2021 02:54AM ET

By: AnalysisWatch

The dollar rose in early European trade on Monday, climbing near its recent peak as the US Federal Reserve hinted at interest rate hikes soon, while Europe struggles with the emergence of Omicron cases.

At 2:55 AM ET (0755 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 96.595, not far from last month's peak of 96.938, the highest since July 2020.

The US Federal Reserve took a hawkish turn after its two-day meeting last week: Fed policymakers agreed to accelerate the unwinding of its bond-buying program and possibly also bring forward the first post-pandemic rate hike.

This new stance was confirmed by a number of policymakers late last week, with Fed Governor Chris Waller stating that a March rate hike was "very likely," while San Francisco Fed President Mary Daly advocated two or three rate hikes next year.

The Bank of England also swung to the hawkish side last week, becoming the first G-7 central bank to raise interest rates since the pandemic began. However, the benefits to sterling quickly evaporated as the number of Omicron cases soared and the UK Health Secretary refused to rule out tightening restrictions on the economic and social activity before Christmas.

The GBP/USD dropped 0.2 percent to 1.3212 after reaching 1.3375 on Thursday, its highest level in nearly a month, as the Bank of England raised interest rates.

EUR/USD rose slightly to 1.1255 but is still near its lowest level since 15 December after the Netherlands imposed a curfew on Sunday and Italy confirmed it was considering similar measures.