Currency markets calm in 'eye of the storm'

London

CURRENCY markets steadied on Thursday (Dec 2) as investors waited for clues on the threat posed by the Omicron variant and the speed at which the US Federal Reserve will taper stimulus.

The US dollar edged lower against most rival currencies, while the cautious mood was reflected by equity markets in Europe falling in morning trade.

The US recorded its first case of the Omicron variant on Wednesday, weighing on markets.

The US and Germany joined countries around the globe planning stricter Covid-19 restrictions on Thursday.

"It seems like the market is getting a breather this Thursday morning in what could be the eye of the storm," FX analysts at Citi said in a note.

The dollar index, which tracks the greenback against 6 major currencies, was down 0.2 per cent on the day at 95.892.

The index swung lower last week after news of Omicron first emerged, although it remains close to a 16-month high of 96.938 hit last month.

Currency volatility trackers remain at multi-month highs, however, suggesting big moves could still be in store.

Traders are also awaiting clarity on how quickly the Fed will taper its asset purchases, as central banks around the world grapple with how fast to unwind stimulus amid soaring inflation.

Fed chair Jerome Powell reiterated in testimony to US Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec 14-15 meeting.

"Fed chair Powell signalled clearly this week that the Fed is becoming more concerned over the persistence of higher inflation, and emphasised that they are prepared to take policy action to address upside risks to inflation," MUFG FX analysts said in a note.

"The comments provided strong guidance that the Fed is likely to speed up the pace of quantitative easing tapering in December."

The euro rose 0.2 per cent versus the dollar at US$1.13370.

The Japanese yen - which strengthened over the past week as investors sought safe havens - fell back 0.2 per cent versus the dollar to 112.94.

Sterling rebounded by 0.4 per cent, lifting it above US$1.33. REUTERS