Analysts assess the volatility of EUR/USD is quite high amid market anticipation of the Fed's policy and developments in Omicron.
The US dollar slipped versus the euro in the trading session on Wednesday (01/December) this evening in line with increasing risk appetite. Investors are still concentrating on the Fed's policy outlook and risks related to the development of the Omicron variant.
The US Dollar Index is down 0.1% and trading at 95.8 at press time, while EUR/USD is steady at 1.1341, continuing the rally that has been building since the past week.
The US dollar weakened again even though the US economic data was not as bad as expected. ADP Employment Change added 534,000 in November, higher than the 525,000 expectation. Meanwhile, the ISM version of the US Manufacturing PMI edged up from 60.8 to 61.1.
Keep an eye on the Fed's Monetary Policy Signals
Global stock markets and high-risk profile currencies are recovering from the pressure. The main focus of investors seems to be more directed to the Fed's monetary policy signals, although the development of the Omicron variant is also still a concern.
"Right now, the market focus is still on Omicron and the potential that the virus could wreak havoc on the world again. However, the real focus seems to still be on the Fed and their rate policy. That's the biggest shock of recent times," said Kerry Craig, analyst markets at JPMorgan Asset Management.
In the forex market in particular, the volatility is quite high. This week, the monthly volatility of EUR/USD even touched its highest level this year. According to the analysis of experts at ING, EUR/USD volatility spiked as the Omicron variant has a chance to slow the Fed's move to tighten monetary; it is positive for the movement of the euro.
However, Powell's speech before the Senate yesterday was hawkish and negative for the Euro against the US Dollar. Therefore, EUR/USD needs further observation in the next month. "Both issues will receive a lot of new input over the next four weeks. The thinning liquidity conditions are leading to steep conditions in the FX market," wrote ING.
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