© Reuters. File photo: Counting U.S. dollar bills at a foreign exchange office in Ankara, Turkey, November 11, 2021. REUTERS / Cagla Gurdogan / File Photo
Author: Sujata Rao
LONDON (Reuters)-The U.S. dollar broke a one-week high against a basket of major currencies on Tuesday, as the market expected the Fed to hold a hawkish meeting and there was uncertainty about the Omicron coronavirus variant.
Inflation data at the entrance of US factories later today may consolidate expectations for the Fed. The Fed will announce an accelerated reduction of its stimulus plan so that it can complete bond purchases around March and continue to raise interest rates.
As oil prices rose slightly from 8.6% in October and 1.9% in January, PPI has been a fairly reliable predictor of consumer inflation, and it may have exceeded 9% in November.
Some relief on COVID-19 forehead- Pfizer (The New York Stock Exchange ? stated that the final analysis of its antiviral drug showed its effectiveness, including the fight against the new Omicron variant-pushing the U.S. dollar down from its previous highs, but at least in the short term, it is benefiting from The Fed’s more aggressive political stance compared with its central bank counterparts.
Colin Asher, a senior economist at Mizuho, said that when Omicron’s discovery forced a reduction in bets on interest rate hikes, traders restarted their closed long US dollar positions.
“In the days after the Omicron strike, the worst performance was commodity-driven currencies and global growth. Now trade has reversed to some extent. The U.S. dollar should remain strong until the market is convinced that U.S. inflation has peaked.” Scheer said.
As of 11:30 am GMT, the exchange rate of the measured currency against the six currencies fell 0.2% to 96.139, after hitting the highest point since December 7 of 96.493.
The two-day Fed meeting that began late Tuesday will be the focus of a series of policy decisions by central banks such as the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Japan this week.
However, although the currency market predicts that the Fed is likely to raise interest rates by June, it is expected that the European Central Bank, Bank of Japan or the Swiss National Bank will not act soon, and the threat of Omicron may force the Bank of England to postpone the interest rate hike until February. .
Westpac analysts told clients that the Fed had unexpectedly high thresholds in a tough manner, but even if it lived up to expectations, “they are still one step ahead of the European Central Bank” and added that they have seen a correction of the dollar index to the mid-95 level. “Buy”.
The euro rose 0.3% to $1.1319 after hitting a one-week low of $1.12605 overnight. The German Institute Ifo predicted on Tuesday that the German economy will contract by 0.5% month-on-month in the last three months of this year and stagnate in the first three months of next year.
The U.S. dollar was flat against the yen at 113,520 yen, but the pound rose 0.3% after data showed that employers hired a record high in November.
Asher said this maintains the possibility of raising interest rates on Thursday.
“But for Omicron, there is no doubt that they will raise interest rates. For Omicron, it is now 50:50,” he added.
At the same time, the first Omicron case was discovered in mainland China, but the exchange rate of RMB against the US dollar for overseas transactions rose by 0.12%, hindering the reduction of official policy interest rates.
The leading cryptocurrency, Bitcoin, slightly touched the low of December 4, but it is still about 30% lower than the all-time high in early November.