The dollar hovered above a week-long low against major competitors on Tuesday as it allayed fears that the new Omicron coronavirus variant would derail the US recovery and slow the Federal Reserve’s rate hikes.
The safe-haven yen stabilized about half a percent from its highest level since Nov. 11, which was reached Monday. The euro lurched about a third of a percent below its week-long high from Monday.
The risk-sensitive Australian dollar fell about 0.4% from a three-month low.
Traders are taking comfort in comments from President Joe Biden that the United States would not reinstate lockdowns, as well as comments from a South African doctor that the new strain is causing milder symptoms.
In testimony to be prepared for Congress later Tuesday, Fed Chair Jerome Powell says Omicron can help keep inflationary pressures lasting longer.
That could potentially hasten the need for rate hikes as traders initially reacted to the Omicron discovery by pushing back bets on a Fed tightening due to the risk to growth.
Money markets currently see good opportunities for a first rate hike in July, but it will not be fully priced until September.
At the same time, the World Health Organization warned of a “very high” risk of waves of Omicron infection, and countries around the world have responded quickly to tighten border controls.
“A less severe assessment of Omicron has allowed the (dollar index) to reverse some of its decline,” but “the somewhat disappointing rebound in global markets suggests there is still a heightened level of concern about the Omicron variant,” Westpac strategists wrote in a research note.
The continued strength of the US economy will support the dollar, strategists predict, as the Aussie continues to look weak and a breach below $0.7106 “seems just a matter of time.”
The dollar index, which measures the currency against six major rivals, last traded at 96.203, up from a low of 95.973 on Friday, when it experienced its biggest one-day drop since May.
The greenback added 0.24% to 113.80 yen, after falling to 112.99 on Monday.
The Australian dollar rose to $0.7146 and continued its recovery from Friday’s low of $0.71125.
The euro was roughly flat at $1.12955, from Monday’s high of $1.1335.
The single currency had plunged to a nearly 17-month low of $1.1186 as European Central Bank policymakers persisted in their moderation in the face of heated inflation. The final reading on consumer prices in the euro area is expected later Tuesday.
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