Dollar Vulnerable Against Euro and Yen, Risk Selloff Resumes on Omicron

The dollar appears to have taken a knock as a result of the concerns about the Omicron COVID variant, which was just discovered, and has introduced significant hazards to the world economy. Today’s stock market selloff resumed as Moderna CEO Stéphane Bancel predicted a “substantial reduction” in the efficiency of current Omicron vaccinations.

On safe-haven movements, benchmark Treasury yields have also fallen considerably. As oil prices fall, the Canadian Dollar leads commodity currencies to lower in currency markets. The dollar is being pulled down by a sharp drop in Treasury yields. At the same time, the strongest currencies are the Yen, Swiss Franc, and Euro.

Eurozone CPI in November accelerated to 4.9% y / y, compared with 4.1% y / y, well above expectations of 4.4% y / y, the highest level in the entire 25-year history of the series … The core CPI rose to 2.6% YoY from 2.0% YoY, above expectations of 2.3% YoY.

Looking at the main components of inflation, the energy sector is expected to have the highest annual rate (27.4% versus 23.7% in October), followed by services (2.7% versus 2.1% in October). October), non-energy manufactured goods (2.4% versus 2.0% in October), and food, alcohol, and tobacco (2.2% versus 1.9% in October).

The omicron variant, according to Federal Reserve Chair Powell, creates uncertainty about inflation and hence threatens growth prospects. The virus’s strain could potentially stymie the US employment market’s rebound and prolong supply chain disruptions, which have kept price pressures high. The key question is whether the new omicron virus variant will impose new restrictions on mobility and, if so if this could derail the Fed’s policy tightening or delay rate hikes.

As the Dollar Declines, Risk Aversion Mounts

Despite the worse market sentiment, the U.S dollar has lost ground, with the DXY trading at 95.78. Haven currencies are witnessing a lot of movement in the FX market. With USDCHF at 0.9177 and USDJPY at 112.80, the yen and the Swiss franc are outperforming.

That means that if the Non-Farm Payrolls figure is weaker than predicted on Friday, the emerging market area, rather than the DM zone, would see gains. And any strong dollar repercussions from a higher-than-500k report on Friday will most certainly be muted by omicron. Markets, like other asset classes, will be watching the news ticker for the newest omicron headlines.