Peter Nurse

Investing.com reports that Monday saw the dollar rise due to uncertainty about the omicron Covid variant as well as expectations that the Federal Reserve will tighten their monetary policies quickly. However, the euro was weakened by disappointing German factory orders.

At 2.50 AM ET (0750 GMT), Dollar Index, which measures the greenback’s performance against a basket six other currencies, increased 0.3% to 95.365. It is still below November’s 16 month peak of 96.938.

Traded flat at 1.3232 and rose 0.3% to 113.10; the risk-sensitive increased 0.2%, to 0.7016. This rebounded from its 13-month low.

Furthermore, it fell 0.3%, to 1.1284. The euro was also hit hard by the October drop of 6.9%, which came after an increase of 1.8% for September. Further clouding Europe’s growth prospects is the fact that the largest economy in Europe has a revised 1.8% rise in September.

With the U.S. Centers for Disease Control and Prevention stating that the new coronavirus variant was discovered in approximately 15 states, the safe-haven dollar received a boost.

We know that we have several dozen of these cases, and are closely following them. In an interview with ABC News, Dr. Rochelle Wilensky stated that we hear about new cases every day so the number of probable cases is expected to increase.”

The dominant factor in the greenback’s favor has been Jerome Powell, Federal Reserve Chairman, last week’s acceptance that inflation would remain higher for longer than expected. Therefore, policy-makers at the central bank will have to consider this fact.

Even last week’s disappointing release did little to shake market expectations of a more aggressive U.S. tightening, especially with Friday’s expected to show another sharp rise in the annual November number.

“Fed Chair Jay Powell’s comments … that inflation is effectively no longer transitory has seen the policy-sensitive U.S. two year yield stay firm above 0.60% on the view that the Fed’s normalization of monetary policy is locked and launched,” said analysts at ING, in a note.

The futures market has almost all the price for a rise to 0.25% in May 2022, and to 0.5% in November 2022.

Except for the Federal Reserve on Tuesday, it is likely that the Federal Reserve will keep its cash rate at 0.1% in its final meeting of this year.

Traders will be looking for any clues about the RBA’s review of its bond-buying program on Feb. 1, the first meeting of 2022.