Omicron Spurs Dollar Surge and Euro Decline as Fed Announces Interest Hike

After the Federal Reserve announced its first hike in interest rates to offset pandemic-induced inflation, the U.S. dollar reached its second highest peak in 17 months on Monday, outperforming prominent peers.

Conversely, the euro as well as the British pound experienced a drop following a lockdown in the Netherlands and the U.K. government’s decision to enforce full COVID-19 restrictions ahead of Christmas, as Omicron cases continues to mount at a brisk rate.

Compounded by the rapid spread of the virus and the resulting legal restraints, banks are adopting a more hawkish stance to protect the economy against the effects of the pandemic.

Federal Reserve Governor Chris Waller has stated that the first interest hike is “very likely” to happen sometime in March, 2022. Mary Daly, the President and Chief Executive Officer of the San Francisco Federal Reserve, is also backing the interest rate hikes, even calling for three increases to be implemented next year.

The dollar index placed at 96.629 which is quite close to November’s high of 96.938.

However, Chris Weston, Head of Research at Pepperstone Melbourne, contended that despite the current rise, the dollar is still susceptible to regression.