US dollar fluctuates on Omicron variant headlines

The US dollar attempted a recovery from Friday’s slump on Monday as fears eased over the Omicron coronavirus variant. However, concerns have returned this morning and the US dollar has fallen back in line with lower US Treasury yields.

The pound is making gains this morning, although GBP/EUR is slipping at €1.1760. GBP/USD is edging higher at $1.3340 and GBP/CAD has jumped to C$1.7066, while GBP/AUD and GBP/NZD are strengthening at AU$1.8741 and NZ$1.9596, respectively.

Looking ahead, Eurozone inflation and Federal Reserve chair Jerome Powell’s US Senate appearance will likely drive movement in the euro and US dollar today.

What’s been happening?

The US dollar mounted a recovery on Monday as market mood recovered from Friday’s equity market selloff that was likely exaggerated by thin trading conditions due to the Thanksgiving holiday.

Rising US Treasury yields supported the US dollar as market concerns eased over the impact of the Omicron coronavirus variant on economic activity.

Meanwhile, the euro fell yesterday due to its negative correlation with the US dollar and weak economic data releases.

German inflation accelerated more-than-expected to 5.2% in November, up from 4.5%, and Eurozone economic sentiment slipped to a six-month low.

The pound weakened at the start of this week amid a lack of progress in post-Brexit trade talks, and caution over the impact the Omicron coronavirus variant could have on the UK economy, after modest restrictions were announced at the weekend.

News of the Omicron variant also fuelled uncertainty as to whether the Bank of England (BoE) will hike interest rates at its December policy meeting.

What’s coming up?

Market mood has soured again this morning after the chief executive of drugmaker Moderna, Stéphane Bancel, warned the efficacy of current vaccines may be lower against the Omicron variant.

Meanwhile, the Eurozone’s inflation rate for November will be the first significant data release for investors today.

Forecasts point to inflation in the bloc having risen to 4.5%, from 4.1% in October, likely denting the euro as European Central Bank (ECB) policymakers continue to reiterate their loose monetary policy stance.

Later in the day, focus will turn to US Treasury Secretary Janet Yellen and Fed chair Jerome Powell’s appearance in the US Senate for impetus in the US dollar.

Following the release of Powell’s testimony last night, the Fed chair may further fuel expectations for earlier monetary policy tightening despite warning of the risks the Omicron variant poses to the US economy.

The pound may lack direction today without significant data releases. Headlines emerging from ongoing UK-EU post-Brexit talks, rising Anglo-French tensions, and Covid-19 developments may drive GBP movement.