The market turmoil continued regarding the spread of the Omicron variant of the COVID-19, although the US dollar was slightly supported by the testimony of the hawkish Fed Chair.
The US dollar index (DXY) rose slightly to the 96.10s in early European trading today (2/December), but is still confined within the range of movement formed at the beginning of the week. The market volatility continued regarding the spread of the Omicron variant of COVID-19 in various countries, although the greenback was slightly supported by the testimony of the Fed Chair who was hawkish.
Early indications suggest that Omicron may indeed be more infectious than previous COVID-19 variants. More and more countries are announcing findings of Omicron cases in their region, including Australia, the UK, Canada and Japan, which have tightened entry rules for arrivals at borders.
The US also found its first Omicron case in California. The case involved a person who had been vaccinated but only returned from South Africa on November 22.
Meanwhile, Fed Chair Jerome Powell continued to express his confidence in the economy in his second day of testimony in the US Congress. He reiterated that the FOMC will consider accelerating tapering at the policy meeting on December 14-15.
The movement of the US dollar indicates that the market remains less responsive to Powell's remarks. Under normal market conditions, such hawkish rhetoric might already have pushed the USD further higher. Unfortunately, Omicron presents uncertainties that make many traders act more cautiously .
"(Powell's re-testimonials) tell you he is not at all happy about how the market interpreted what he said earlier," wrote Ray Attrill, head of FX strategy at National Australia Bank (NAB), in a note to clients cited by Reuters.
"The truth is we are less than a week into the 2-3 week timeframe that experts - epidemiologists, not market analysts - say is necessary before a proper assessment can be made with respect to the seriousness of this COVID-19 variant and the efficacy of existing vaccines. ."
The greenback also ignored a number of US economic data released in the New York session. The release of ADP data shows an increase in non-farm employment of 534k for the period November 2021, larger than the consensus estimate of only 525k. Meanwhile, ISM reported that the US manufacturing PMI score increased from 60.8 to 61.1. Both provide a positive signal for the release of Non-farm Payroll data tomorrow.
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