FOREX-Dollar stays soft, with Omicron still top of mind

HONG KONG, Dec 9 (Reuters) – The dollar failed to pick up ground on most major peers on Thursday as markets saw optimism in early data hinting the Omicron variant of the new coronavirus may not be as bad as feared, even as new COVID-19 restrictions in Britain hurt the sterling.

The euro was at $1.1338, after gaining 0.7% on Wednesday to a week high of 1.1354, and the Aussie dollar was at $0.7168 just off Wednesday’s week high, after a midweek rally in risk assets such as equities had helped the currency.

MSCI’s all-country world index is back in sight of all-time highs, having had its best day in more than a year on Tuesday and rising further on Wednesday.

Markets were roiled late last week by news of the new strain of COVID-19, which drove investors to safe havens, but have since taken heart from signs that the worst fears may not be realised.

BioNTech and Pfizer said on Wednesday a three-shot course of their COVID-19 vaccine neutralised the new Omicron variant in a laboratory test, an early signal that booster shots could be key to protection against infection from the newly identified variant.

“It’s very ‘virus-on’ ‘virus-off’ in the FX market, and I think we are going to be stuck with this for a while,” said Paul Mackel, global head of FX research at HSBC. “The headline risk associated with Omicron is very high, it’s very confusing, and it’s making the intraday moves fairly volatile.”

Illustrating this, the pound dropped to a year low on Wednesday after British Prime Minister Boris Johnson imposed tougher COVID-19 restrictions in England, ordering people to work from home, wear masks in public places and use vaccine passes.

The pound rebounded a little to last trade at $1.3202.

Also on traders’ minds is the U.S. Federal Reserve’s December meeting next week, at which it could announce an acceleration of tapering of its bond-buying programme.

Before the arrival of the Omicron variant, the different paces at which global central banks would raise rates had been the major factor shaping currency markets.

The Canadian dollar was largely unchanged after the Bank of Canada held its key overnight interest rate at 0.25%, as expected, and maintained its guidance that a first hike could come as soon as April 2022, having gained to its highest in around three weeks ahead of the meeting along with higher oil prices.

Bitcoin was about flat on Wednesday at $50,400, after top executives from six major cryptocurrency companies including Coinbase and Circle urged Congress to provide clearer rules for the booming $3 trillion industry.

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