The US currency is starting to regain momentum against main currencies after a spike in weakness triggered by the discovery of the omicron variant of the coronavirus. First of all: the EUR/USD pair is struggling to settle above 1.13.
Friday's report showing the health of the US labour market in November was disappointing, but its details suggest that a key area of the economy is doing well. Traditionally, the problem in recent months has not been labour demand but labour availability. The lower-than-expected employment growth (210,000 jobs vs the forecast of more than half a million) is accompanied by another upward revision of the previous data, a strong drop in the unemployment rate (to 4.2%) and an increase in the number of hours worked.
The Federal Reserve is unfazed by omicron
Condition of the key sphere of the economy from the point of view of the Federal Reserve should not result in the abandonment of plans for faster policy normalisation, primarily in the form of tapering of asset purchases, before the middle of next year. It seems that the monetary authorities have not been frightened by the spread of the omicron variant of the coronavirus either. On the contrary: some policymakers may be concerned, among other things, about amplifying disruptions in global supply chains and thus acting to increase price pressures. Speaking of which, it should be mentioned that this week's essential data will precisely be the November inflation information.
Consumer price dynamics will reach a new cyclical high and could exceed as much as 7% year-on-year, while the core index could come in more than 5% higher than a year ago. This should fuel expectations that the Fed will tighten rates as early as December and thus support the US currency. The dollar can expect to return to favour if it turns out that the new variant of the coronavirus has caused fear and shock, which will not translate into a return of restrictions and a worsening of the outlook for economic growth. The pause in the dollar's rally has played an important role in the jump in the value of emerging market currencies, so a potential return to an upward trajectory for the US currency should be seen as a threat to this environment.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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29 Nov 2021 8:12
Currency rates react to Omicron: the dollar is weaker, the franc gets stronger (Daily analysis 29.11.2021)
The US currency is starting to regain momentum against main currencies after a spike in weakness triggered by the discovery of the omicron variant of the coronavirus. First of all: the EUR/USD pair is struggling to settle above 1.13.
Friday's report showing the health of the US labour market in November was disappointing, but its details suggest that a key area of the economy is doing well. Traditionally, the problem in recent months has not been labour demand but labour availability. The lower-than-expected employment growth (210,000 jobs vs the forecast of more than half a million) is accompanied by another upward revision of the previous data, a strong drop in the unemployment rate (to 4.2%) and an increase in the number of hours worked.
The Federal Reserve is unfazed by omicron
Condition of the key sphere of the economy from the point of view of the Federal Reserve should not result in the abandonment of plans for faster policy normalisation, primarily in the form of tapering of asset purchases, before the middle of next year. It seems that the monetary authorities have not been frightened by the spread of the omicron variant of the coronavirus either. On the contrary: some policymakers may be concerned, among other things, about amplifying disruptions in global supply chains and thus acting to increase price pressures. Speaking of which, it should be mentioned that this week's essential data will precisely be the November inflation information.
Consumer price dynamics will reach a new cyclical high and could exceed as much as 7% year-on-year, while the core index could come in more than 5% higher than a year ago. This should fuel expectations that the Fed will tighten rates as early as December and thus support the US currency. The dollar can expect to return to favour if it turns out that the new variant of the coronavirus has caused fear and shock, which will not translate into a return of restrictions and a worsening of the outlook for economic growth. The pause in the dollar's rally has played an important role in the jump in the value of emerging market currencies, so a potential return to an upward trajectory for the US currency should be seen as a threat to this environment.
See also:
Currency rates react to Omicron: the dollar is weaker, the franc gets stronger (Daily analysis 29.11.2021)
The euro gives up the recent bounce; the US dollar continues to shine (Daily analysis 25.11.2021)
Dollar continues to strengthen, euro below in the red (Daily analysis 22.11.2021)
The dollar strengthens for a week; the EUR/USD pair is near 1.13 (Daily analysis 17.11.2021)
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