US dollar near one-week low as Omicron fears ease

London

THE US dollar index flatlined near a one-week low on Thursday, as fears of fallout from the Omicron Covid variant eased, boosting higher risk currencies such as the Australian dollar and British pound.

The dollar index, at 96.159, was unchanged on the day but near its weakest since last Friday. The US dollar rose against the Japanese yen - another safe-haven currency - and was up 0.2 per cent at 114.3, near Wednesday's one-month high of 114.37.

Risk appetite has improved since Monday, when markets were rattled by government restrictions relating to the spread of Omicron.

However, data on Wednesday showed US consumer confidence improving more than expected in December, suggesting the economy would continue to expand in 2022 despite a resurgence in Covid-19 infections and reduced stimulus spending.

A South African study meanwhile suggested reduced risks of hospitalisation in Omicron patients.

The Australian dollar rose 0.3 per cent to US$0.7238 after Wednesday's 0.86 per cent surge. The Norwegian crown firmed to one-month highs against the dollar and euro, also boosted by soaring oil and gas prices.

The euro was flat around US$1.1327 but sterling rallied half a per cent as inflation-adjusted gilt yields were boosted by markets pricing 100 bps in UK rate hikes next year.

US real yields have flatlined since the mid-December Fed meeting.

MUFG strategist Lee Hardman predicts the US dollar correction to be shortlived.

A turnaround could come as early as this afternoon if the US PCE deflator hits new multi-decade highs confirming faster Fed rate rises.

Elsewhere, the Turkish lira extended its startling rebound this week, rising another 12 per cent at 10.6 per dollar, having traded as weak as 18.4 on Monday.

The big gains came after President Recep Tayyip Erdogan said the government and central bank would guarantee some local currency deposits against FX depreciation losses. REUTERS