Euro dollar volatility surges on Omicron, bets on Fed

  • 01 December, 2021
  • 1:50 pm EET

The dollar edged up on Wednesday as euro-dollar volatility hit the highest level of the year in response to worries about the Omicron variant, while the dollar found support in renewed expectations for interest rates hikes.

The dollar index DXY rose 0.03% to 95.997 , after it registered its strongest month since June, despite volatility triggered by Omicron.

Euro/dollar volatility levels have reached the highest level this year with the euro EUR=EBS climbing to a two-week high on Tuesday, before losing ground as the dollar strengthened.

“Realised one-month EUR/USD volatility has spiked to the highest levels of the year as fears over Omicron, but hawkish comments from Fed Chair Powell throws the dollar around,” ING told clients.

Federal Reserve chair Jerome Powell signalled the central bank may speed up the pace of its bond-buying taper at its meeting later this month. He also told lawmakers it was time to retire his description of price pressures as transitory.

The euro fell 0.1% versus the dollar to $1.1325.

On Tuesday, a warning from drugmaker Moderna that existing vaccines are unlikely to be as effective against the Omicron variant as they are against other strains, led to a surge of interest in safer assets.

Later, BioNTech chief executive struck a cautiously positive note, saying the vaccine it makes in a partnership with Pfizer PFE would likely offer strong protection against severe disease from Omicron.

Sterling, considered a risk currency, edged up 0.15% to $1.3318 in early London trading, after falling to its lowest level since December in the previous day, reflecting concern over whether vaccine will work against the Omicron variant.

The Australian and New Zealand dollars also made gains, carrying them up from one-year lows, after losses last week and on Tuesday. The Aussie AUD=D3 bought $0.7148 and the kiwi NZD=D3 $0.6844.

The Chinese yuan CNY=CFXS, a beacon of resilience in a turbulent few days, touched a six-month high of 6.3596 per dollar after better-than-expected manufacturing data from November.

 by Joice Alves

Reliable Trading since 2012