US dollar near one-week high amid hawkish Fed hopes, Omicron fears

TOKYO (REUTERS) – The United States dollar traded near a one-week high versus a basket of major rivals on Tuesday (Dec 14), supported by expectations of a hawkish Federal Reserve meeting this week and haven demand amid continued uncertainty about the Omicron coronavirus variant.

The dollar index, which measure the currency against six peers, was little changed at 96.416, after touching 96.450 on Monday for the first time since Dec 7. The Fed’s two-day meeting that begins later on Tuesday headlines a string of central banks announcing policy decisions this week, including the European Central Bank (ECB) and Bank of England on Thursday and the Bank of Japan on Friday.

The US central bank is expected to announce it will wrap up its bond buying stimulus sooner than previously communicated, potentially setting up earlier interest rate increases next year. Money markets currently price good odds of a rate hike by June, with another as early as November.

“That leaves a very high bar for the Fed to deliver a ‘hawkish surprise’,” Westpac strategists wrote in a client note. “But even if the Fed merely matches elevated expectations, they are still streets ahead of the ECB, who is looking for ways to maintain accommodation” after its Pandemic Emergency Purchase Programme is due to end in March.

Although the dollar index’s advance has slowed recently, pullbacks into the mid-95 level are a buy, the strategists said. A Reuters poll of ECB-watchers found the ECB would halve the amount of assets it buys each month from April.

The euro was about flat at US$1.12835 after touching a one-week low of US$1.12605 overnight. Sterling was little changed at US$1.3210, meandering for the past week near the one-year low of US$1.31615 reached last week.

Britain reported the first publicly confirmed death globally from Omicron, British Prime Minister Boris Johnson said on Monday, a day after he warned of a “tidal wave” of infections from the new variant. British scientists announced findings that two doses of current Covid-19 vaccines do not induce enough neutralising antibodies against Omicron.

Meanwhile, mainland China detected its first case of Omicron infection, state media said on Monday. The dollar changed hands at 113.545 yen, another safe haven, consolidating in the upper end of the pair’s trading range this month.

The risk-sensitive Australian dollar eased 0.2 per cent to US$0.71215, edging back toward Monday’s one-week low at US$0.7111.

Leading cryptocurrency bitcoin rose about 1 per cent to US$47,211, lifting off Monday’s low of US$45,750, a level not seen since Dec 4, when the digital token plunged below US$42,000 for the first time since September.

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