Peter Nurse

Investing.com. The Dollar edged higher Wednesday in European trading, though ranges are still tight. Traders continue to evaluate the Omicron Covid variant’s effect as the end of the year approaches.  

At 2:55 AM ET (07:00 GMT), the Dollar Index (which tracks the greenback against six currencies) rose 0.1%, to 96.558.

After Britain’s slow economic growth in the July-September period saw it grow 0.1% higher to 114.16 and 0.1% lower to 1.1267 respectively, its risk-sensitive fell 0.2% to 0.3737.

“The week before and the one after Christmas are notably a low-volatility period for most asset classes including FX,” said analysts at ING, in a note. “This year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions.”

Looking at the big picture, Omicron infected are increasing across Europe, USA, and Asia. Many countries have begun to think about new restrictions to movement. It is likely that this will affect risk sentiment. However, it can also benefit the safe-haven dollars.

The U.S. Federal Reserve also announced that it was speeding up the withdrawal of its bond buying program, possibly bringing interest rate increases to the first quarter of 2022. 

This is in contrast to the Bank of Japan’s still extremely accommodative stance. The European Central Bank has only moderately reined back stimulus, but still rules out interest rate increases next year.

The dollar could also be supported by the rising tension at the Ukraine-Russia border, as reports suggest that Russia is preparing for an invasion.

Putin spoke hardline Tuesday. He said Russia could not retreat from the standoff with America over Ukraine, and that Russia would need to adopt a military-technical response unless Washington changes its mind.

A Biden administration official responded that the U.S. is considering harsh export control measures in order to undermine Russia’s economy in case Russia invades Ukraine.

The ruble dropped 0.2%, to 73.8510. Russia’s Bank of Russia raised interest rates by 100 points last week. This is its second move of this year.

Other currencies fell 0.3%, to 12.4859. The lira recovered from its record lows against USD after President Recep Tyyip Erdogan revealed measures earlier this week that would support the currency. These included a program to safeguard savings from fluctuating lira.