US dollar struggles on Omicron concerns; traders eye non-farm payrolls

NEW YORK: The dollar was on the defensive against some major currencies on Thursday, as investors fretted about the fast-spreading Omicron coronavirus variant with the United States reporting its first case, with worries about the speed at which the U.S. Federal Reserve will taper its asset purchases weighing on the greenback as well.

The U.S. currency’s losses though appeared limited as investors looked ahead to Friday’s non-farm payrolls report for November.

“The risks are there for a big employment print to push the dollar higher, but the impact of the final non-farm payroll release ahead of December’s tapering announcement has been muted by Omicron concerns,” said Simon Harvey, senior FX market analyst at Monex Europe in London.

The United States recorded its first case of the Omicron variant on Wednesday, weighing on markets. The United States and Germany joined countries around the globe planning stricter COVID-19 restrictions on Thursday.

In mid-morning trading, the dollar index, which tracks the greenback against six major currencies, was down 0.2% on the day at 95.895.

The index swung lower last week after news of Omicron first emerged, although it remains close to a 16-month high of 96.938 hit last month.

“While the dollar is down against the euro, sterling, and the Swiss franc, this should be viewed in the context of very tight recent ranges for these currency pairs,” said Monex’s Harvey.

“Meanwhile, further downside in dollar/yen is seemingly absent though, suggesting today’s broad U.S. dollar move isn’t a clean risk-off move,” he added.

The dollar trimmed losses after data showing initial claims for state unemployment benefits rising 28,000 to a seasonally adjusted 222,000 for the week ended Nov. 27, lower than the forecast of 240,000.

The dollar rose 0.2% versus the yen to 112.89.

The euro was up 0.1% at $1.1335.

Scotiabank in a research note said the euro “remains favored as a semi-haven currency.” However, it expects euro weakness ahead, toward the $1.10/11 zone given weak near-term economic and rates fundamentals, but virus uncertainty should keep it in a $1.12-$1.14 range for now.

Currency volatility trackers remain at multi-month highs, suggesting big moves could still be in store.

Traders are also awaiting clarity on how quickly the Fed will taper its asset purchases, as central banks around the world grapple with how fast to unwind stimulus amid soaring inflation.

Fed Chair Jerome Powell reiterated in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their Dec. 14-15 meeting. Sterling rose 0.2% to $1.3312.