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6 Dec 2021

Omicron Insecurity Spurs Dollar Growth

The Index Today

The Index Today — Monday morning witnessed an upswing in dollar value as prompted by the Omicron variant of the coronavirus with inflation ranks expected to rise steadily, putting more pressure on interest rates.
By 11:28 PM ET (4:28 AM GMT), the U.S. Dollar Index rose from 0.16% to 96.270.

The USD/JPY pair also experienced an increase from 0.17% to 113.

As informed by the policy decision of the Reserve Bank of Australia, the AUD/USD pair saw a boost from 0.30% to 0.7022.

The USD/CNY pair suffered a decrease from 0.11% to 6.3689, as the GBP/USD pair grew from 0.03% to 1.3236.

Despite risks, the Australian and New Zealand currencies pulled through with the help of South African reports that noted comparatively milder symptoms among patients for the Omicron variant of the novel coronavirus.

Nonetheless, analysts from ANZ Bank laid more emphasis on the significance of volatility. “Perhaps, we should be looking for volatility rather than a trend,” they said.

The treasury markets have also recently witnessed a significant rate of volatility compounded by the acute flattening of the U.S yield curve, against the hopes of inflation control by the Federal Reserve, thereby affecting long-term economic progress.

Despite the decline, interest rates future markets have predicted an increase in mid-2022. However, investors remain uncertain as the hike rate would reach a high of 1.5% only by the end of 2026, and is also subject to change.

Chris Weston, the Head of Research at Pepperstone, commented, "This is a tough one to reconcile. It suggests the market sees the Fed stopping hiking after five hikes, well short of the Fed's median forecasts."
Still, an annual inflation rate of over 7% in contrast to the predicted rate of 6.7%, has the potential to alter the market scenario. Weston contends that an “inflation with a 7 as the big number would get the dollar higher.”

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