Dollar on Back Foot as Omicron Optimism Grows By

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By Peter Nurse – The dollar edged higher Thursday, but remained on the back foot as risk appetite remained strong on positive news surrounding the likely economic damage caused by the Omicron Covid variant.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 96.037, some way below the year’s high of approaching 97 seen at the end of November.

fell 0.1% to 113.53, slipped 0.2% to 1.1324, just below a one-week high, and the risk-sensitive gained 0.1% to 0.7176, just off its weekly high.

dropped 0.1% to 1.3203, after falling to a 2021 low on Wednesday after U.K. Prime Minister Boris Johnson imposed tougher Covid-19 restrictions in England, ordering people to work from home and wear masks in public places. Social gatherings will still be allowed, however. It has been politically impossible to restrict them due to public outrtage over a party held last Christmas by staff at 10 Downing Street in defiance of the government’s own social distancing rules 

Despite this news out of England, risk-friendly currencies have seen demand this week following indications that the worst fears associated with the new Covid variant may not be realised.

Pfizer (NYSE:) said on Wednesday that three doses of its Covid-19 vaccine, developed with BioNTech, neutralised the new Omicron variant in a laboratory test, indicating that booster shots could be key to protection against infection.

“We have highly effective vaccines that have proved effective against all the variants so far, in terms of severe disease and hospitalisation, and there’s no reason to expect that it wouldn’t be so” for Omicron, Mike Ryan, the World Health Organisation’s emergencies director said Wednesday.

With the uncertainty surrounding the Omicron variant beginning to dissipate, attention is turning back to central banks and how they tackle the conflict between confronting high inflation and ensuring growth continues.

The Federal Reserve is still widely expected to announce it will accelerate tapering of its bond-buying program at its meeting next week, but last week’s release disappointed.

Traders will likely keep a watchful eye on the release of the latest weekly U.S. data, at 8:30 AM ET (1330 GMT), the most up-to-date gauge of the strength of the country’s labor market.

Elsewhere, rose 0.1% to 1.2659 after the held its key overnight interest rate at 0.25% on Wednesday, as expected, and maintained its guidance that a first hike could come as soon as April 2022.

rose 0.1% to 4.0680 after Poland’s central bank raised its key interest rate by 50 basis points to 1.75%, as it battles the fastest inflation in two decades.     

was largely unchanged at 6.3435 after the People’s Bank of China tried to rein in its buoyant currency, setting its reference rate for the yuan at a weaker-than-expected level against the dollar.

rose 0.1% to 322.22 ahead of Thursday’s meeting of Hungary’s central bank, which is expected to deliver its fifth interest rate hike in a month in an attempt to combat inflation running at the fastest pace in 14 years.

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