Dollar shines, euro sags as Omicron spreads while Fed hawks circle

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TOKYO — The U.S. dollar hovered near its

highest point in 17 months against major peers on Monday after

Federal Reserve officials signaled a first pandemic-era

interest rate increase could come as early as March.

The euro sank with the British pound after the Netherlands

went into lockdown on Sunday and Britain’s health minister

declined to rule out further restrictions before Christmas amid

the rapid spread of the Omicron coronavirus variant.

Although COVID-19 restrictions cloud the outlook for

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economic growth, they also risk keeping inflation elevated and

turning central banks more hawkish.

Fed Governor Chris Waller, a known hawk, said on Friday that

he thought a rate increase in March would be “very likely” and

that the central bank could start to run down it balance sheet

in mid-2022. Meanwhile, erstwhile dove Mary Daly, president of

the San Francisco Fed, refused to rule out a March increase and

voiced support for as many as three increases next year.

The Fed’s rapid hawkish tilt combined with Omicron’s

troubling spread intensified a risk-off mood, which led

investors to squirrel away their capital in safe havens,

including Treasuries and the dollar, with moves exacerbated by

year-end profit taking, said Ken Cheug, chief Asian

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foreign-exchange strategist at Mizuho Bank.

The dollar index, which measures the currency against

six major peers, stood at 96.629, not far from last month’s peak

of 96.938, the highest since July 2020.

The greenback touched its highest levels since Dec. 15

against the euro, sterling and the risk-sensitive Australian

dollar, although it slipped against fellow haven currency the

yen, but remained near the middle of the trading range of the

past three weeks.

Ten-year U.S. Treasury yields, to which the

dollar-yen pair are often closely correlated, languished near a

two-week low reached Friday.

Money markets price about 50-50 odds of a quarter-point hike

by March.

Chris Weston, head of research at brokerage Pepperstone in

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Melbourne, warned that despite the tailwind from an increasingly

hawkish Fed, the dollar may be vulnerable to a retracement.

“Positioning is skewed long in USDs, so the prospect of

position squaring into year-end is elevated,” Weston wrote in a

client note. “While central bank actions are the real issue,

headlines on Omicron could be seen as the smoking gun for

position squaring.”

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Currency bid prices at 0530 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1250 $1.1236 +0.14% -7.91% +1.1255 +1.1235

Dollar/Yen 113.4600 113.7400 -0.19% +9.90% +113.7000 +113.4800

Euro/Yen

Dollar/Swiss 0.9234 0.9241 -0.07% +4.38% +0.9244 +0.9234

Sterling/Dollar 1.3225 1.3233 -0.05% -3.19% +1.3243 +1.3223

Dollar/Canadian 1.2902 1.2894 +0.05% +1.31% +1.2905 +1.2886

Aussie/Dollar 0.7109 0.7127 -0.25% -7.59% +0.7134 +0.7105

NZ 0.6722 0.6737 -0.22% -6.39% +0.6750 +0.6722

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Kevin Buckland; Editing by Sam Holmes and Gerry

Doyle)