Dollar Resumes Retreat on Tuesday as Omicron Fears Stalls Sell-Off

The US dollar maintained a bearish bias in the London session on Tuesday amid the growing market appetite for risk assets and currencies. The DXY extended its losses overnight following a bump on Democratic spending plans in Washington.

However, a more bearish reaction got prevented amid the spike in Omicron cases across the globe, which has caused some countries to reinstate restriction measures, preventing traders from placing aggressive bets.

The dollar index (DXY), which tracks the currency’s performance against six top pairs, recorded an intraday low at 96.341, down by 0.14% today.

Meanwhile, the euro (EUR) climbed a bit higher against the dollar this morning as the pair reclaimed the 1.1300 top. However, the risk-averse Japanese yen fell against the dollar today as the EUR/USD rallied near the 118 top. Both moves reflected the gains recorded in Asian equities, US share futures, and oil.

Nonetheless, on the larger time frame, the DXY remains aggressively bullish. The currency approached a 16-month high at 96.914 last week following an announcement by the Fed that it could have as many as three interest rate hikes in 2022.

Dollar Crashes Following Manchin’s Back Out from “Build Back Better” Bill

Yesterday’s declines came following US Senator Joe Manchin, a moderate Democrat who plays a critical role in President Biden’s ambitious $1.75 trillion domestic investment bill (Build Back Better), noted on Sunday that he would not support the package. As expected, this threw the market into a pandemonium prompting traders to seek risk-averse assets.

Commenting on Sunday’s event, an analyst at IG markets, Kyle Rodda, noted that:

“The dollar pulled back on the breakdown of Build Back Better. Less stimulus, weaker growth, and rates dropping at the short-end [were] enough to push the dollar slightly lower.”