Dollar droops as economic optimism saps assets demand

December 23, 2021: The safe-haven dollar languished near an almost one-week low against its major peers on Thursday as investors adopted a more optimistic stance about the global economic outlook, despite the rapid spread of the Omicron coronavirus variant.

The dollar index, which measures the currency against six rivals, slipped 0.08% to 96.032 and earlier reached 96.018 for the first time since Dec. 17.

The risk-sensitive Australian dollar was steady at $0.72165 after Wednesday's 0.86% surge.

Sterling was little changed at $1.3352 after a 0.63% rally.

Risk appetite has improved since Monday when markets were rattled by government restrictions relating to the spread of Omicron.

However, data on Wednesday showed U.S. consumer confidence improving more than expected in December, suggesting the economy would continue to expand in 2022 despite a resurgence in COVID-19 infections and reduced stimulus spending.

There was also encouraging news from a South African study, which suggested reduced risks of hospitalization and severe disease in people infected with Omicron compared with the Delta strain.

The euro rose 0.12% to $1.13395, adding to a 0.33% overnight advance.

The dollar was little changed at 114.17 yen – another safe-haven currency – holding close to an almost one-month high from Wednesday at 114.37.

Many analysts expect the dollar to strengthen in coming months after a hawkish tilt this month at the Federal Reserve put an interest-rate increase in March on the table, setting the U.S. central bank apart from more dovish peers in Europe, Japan, Australia, and elsewhere.

Money markets price better than 50-50 odds for an increase by the March policy meeting.

“With recent Fed speak indicating that March is live, we continue to think risk/reward favors respecting that outcome and hence supporting USD firmness in the new year,” TD Securities strategists wrote in a report.

“Ongoing data strength should help bolster Fed pricing, particularly amid reports that Omicron appears to be leading to fewer hospitalizations,” they said.

In the near term, however, the dollar is likely to consolidate within a $1.12 to $1.14 range against the euro, they said.

Reuters

Posted on: 2021-12-23T12:31:42+05:00

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