Dec 22, 2021 02:54AM ET
By: AnalysisWatch
The dollar edged higher in early European trade on Wednesday, but trading ranges were narrow as traders continued to gauge the year-end impact of the Omicron COVID variant.
At 2:55 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.558.
The USD/JPY rose 0.1% to 114.16, the EUR/USD fell 0.1% to 1.1267, and the GBP/USD dropped 0.1% to 1.3252 after the UK economy grew at a slower pace than previously thought in the July-September period, while the risk-sensitive AUD/USD fell 0.2% to 0.7137.
However, by and large, omicron infections are multiplying in Europe, the United States, and Asia, prompting many countries to consider new restrictions on free movement, which is likely to hurt risk sentiment and thus benefit the safe-haven dollar.
In addition, the US Federal Reserve announced last week that it would accelerate the unwinding of its bond-buying program, which could bring forward interest rate hikes to the first half of 2022.
This contrasts with the still very accommodative stance of the Bank of Japan, while the European Central Bank only slightly scaled back its stimulus last week and ruled out rate hikes next year.
Another factor that could support the dollar in the short term is rising tensions on Russia's border with Ukraine, following reports that Russia is deploying troops in preparation for an invasion.
President Vladimir Putin took a tough stance in a speech on Tuesday, saying Russia had no room for a retreat in its dispute with the United States over Ukraine and would be forced into a "military-technical" response if the West did not back down.
In response, a Biden administration official said the US was considering strict export control measures to disrupt the Russian economy in the event of an invasion of Ukraine.