Currencies stabilise as worst Omicron fears ease

Tokyo

THE safe-haven yen on Tuesday (Nov 30) gave up some of the gains it made during last week's market ructions as investors traded on hopes the Omicron coronavirus variant would not derail a global economic recovery as initially feared.

The US dollar rose as high as 113.89 yen during the Asia morning, having plunged on Friday as news about the potentially fast-spreading Omicron variant of the new coronavirus emerged.

It was last at 113.65, up from Monday's 2-week low of 112.97.

Traders have taken comfort from very early hints that Omicron will be milder than feared, as well as from remarks by President Joe Biden that the United States would not reinstate lockdowns.

At the same time, the World Health Organization warned of a "very high" risk of infection surges from Omicron, and countries around the world have reacted quickly to tighten border controls.

Global shares have also rallied, particularly in the US and Europe. This mood also helped the Australian dollar to eek out some gains, rising to US$0.7144, up from Monday's 3-month low of US$0.7109, with an unexpected pick up in China's factory activity in November also a factor.

Sterling was little changed at US$1.3324, while the euro also was flat at US$1.1297. The single currency slumped to a nearly 17-month trough of US$1.11864 last week as European Central Bank policymakers stuck to their dovish stance in the face of heated inflation. The latest reading on euro area consumer prices is due later on Tuesday.

Prior to Omicron's arrival, the main driver of currency moves was how traders perceived the different speeds at which global central banks would end pandemic-era stimulus and raise interest rates, hoping to combat rising inflation without choking off growth.

In testimony prepared for Congress later on Tuesday, Fed Chair Jerome Powell said Omicron could cause inflation pressures to last longer. That would potentially speed the need for rate hikes, whereas traders initially reacted to Omicron's discovery by pushing back bets for Fed tightening because of the risk to growth.

The dollar index, which measures the currency against 6 major rivals, last traded at 96.148, up from a low of 95.973 on Friday, when it suffered its biggest 1-day drop since May.

China's yuan strengthened to a 2-week high against the dollar on Tuesday. REUTERS