Title: Dollar Up, Buoyed by Omicron Uncertainty

Dec 06, 2021 12:11AM ET

By: AnalysisWatch

The dollar gained in Asia on Monday morning as uncertainty over the omicron COVID-19 variant and expectations of more hot U.S. inflation data added pressure on interest rates.

The U.S. Dollar Index, which tracks the greenback against a basket of other currencies, rose 0.16% to 96.270 by 11:28 PM ET (4:28 AM GMT).

The USD/JPY pair rose 0.17% to 113.

The USD/CNY pair fell 0.11% to 6.3689, while the GBP/USD pair gained 0.03% to 1.3236.

The riskier antipodean currencies led a recovery attempt at the start of the session, boosted by preliminary observations from South Africa that suggested omicron patients were showing relatively mild symptoms.

However, ANZ Bank analysts said, "Perhaps we should look for volatility rather than a trend." Volatility indicators for the Australian and New Zealand dollars hit their highest levels in about eight months on Friday.

Omicron has found its way into about a third of the US states. Although research into the variant is ongoing, a South African Medical Research Council article said the majority of COVID-19 patients were admitted for other reasons and were on oxygen.

Government bond markets have also been volatile in recent sessions, with the US yield curve flattening sharply on expectations that the Federal Reserve will curb inflation too quickly and hurt long-term economic growth.

Friday's mixed labour market report also reinforced the view that the Fed will more rapidly scale back its bond purchases. The consumer price index, due to be released later this week, is expected to support this view and give a boost to the dollar.

Interest rate futures markets have priced in rate hikes in the US from mid-2022, but they will not be around 1.5% until late 2026, and investors remain cautious that this will change quickly.