Peter Nurse

Investing.com – The dollar traded higher Monday, boosted by higher U.S. Treasury yields as traders considered Friday’s sharp moves on the discovery of the omicron coronavirus variant as overdone.

The Dollar Index, which measures the greenback’s performance against six other currencies at 2:55 am ET (0755 GMT), traded 0.2% lower at 96.310 after falling to a low of 95.973 Friday.

rose 0.1% to 113.42, after the yen, which had been the biggest beneficiary of Friday’s flight to quality, surged as much as 2% on Friday, with the pair dropping to 113.05.

fell 0.4% to 1.1271, while dropped 0.1% to 1.3329, off Friday’s 11-month low of 1.3278, while the risk-sensitive rose 0.3% to 0.7147, recovering after a 1% tumble on Friday that saw it dip to 0.7112 for the first time since Aug. 20.

On Sunday, the World Health Organization stated that there is no way to know if this new Omicron Coronavirus variant causes more severe diseases or is it more transmissible than others.

South African health experts, who first discovered the new variant, said that symptoms of the Omicron variant were mild. However, they pointed out that South Africa’s population was young and that there was a significant number of cases of breakthrough infections among vaccinated individuals.

Vaccine makers have indicated that they will be able to reformulate their drugs in pretty short order, and this has prompted traders to unwind a lot of Friday’s sharp moves, which were all the sharper for taking place on a day when liquidity was thin due to the U.S. holiday weekend.

Although the benchmark 10-year yield rose as high as 7 basis points, it now trades at 1.54%. However, after falling 16 basis points Friday, which is the steepest drop since March 2020, its current trading price is 1.52%. 

Aside from the news surrounding the omicron variant, “the general environment in FX remains quite supportive for the dollar, as the FOMC minutes and a bunch of good data kept market speculation on faster tapering and earlier tightening alive,” said analysts at ING, in a note. “On top of this, the worsening contagion situation in Europe and risk of fresh containment measures are generating further divergence in policy expectations between the ECB and Fed.”

Several officials from the European Central Bank, including President Christine Lagarde, have speaking duties on Monday, and investors will be looking for clues on the central bank’s thinking ahead of its meeting on Dec. 16. Isabel Schnabel, a member of the ECB Board, stated that she expects inflation to reach its peak during December. Inflation data from Germany for November is expected to be released in the early hours of this morning.

New forecasts are expected to be provided by the ECB. They will need to assess the risks posed in the event of a pandemic, as well the consequences of the return of lockdowns for some regions of Europe.