The dollar gained against the euro, sterling and yen and lost ground to high-beta currencies as declining Omicron fears allowed investors to unwind more safe-haven trades established on initial concerns about the COVID-19 variant.
Markets starved for reasonable, or even nominally positive, returns have seized on preliminary indications that Omicron will not be as bad as feared and that current vaccines and treatments could be effective against it.
Surging stock markets and oil prices suggest investors believe major economies are now better equipped to handle changing pandemic dynamics as well as the accelerated asset purchase tapering expected from next Wednesday's Fed meeting, and potentially rate hikes from Q2 onward.
A Wall Street Journal report Click here said major companies are planning for a 3.9% wage increase in 2022, another indication that inflation is gathering strength.
If Friday's U.S CPI report is near forecast for the core rate rising 0.5% month-on-month and 4.9% year on year versus 4.6% in October, the Fed will have a green light for faster normalization, and the dollar more yield differential fuel.
EUR/USD fell 0.24%, with its 1.1228 low on EBS the lowest in seven sessions and closing in on the 1.1186 November trend lows.
Fed-ECB rates divergence should keep pressure on EUR/USD, with 1.10 the next major pivot point nL1N2SS1IJ.
Sterling fell 0.2%, despite the risk-on trading theme, as 5-year Gilt-Treasury yields spreads tumbled to their lowest since February 2020.
Lingering doubts about the BoE's appetite for rate hikes next week remain a drag nL1N2SS1IY.
Sterling's downtrend is holding just above twin Fibos of the pandemic recovery at 1.3163/66, with oversold studies its main potentially supportive attribute.
USD/JPY was marginally higher, not getting as much support from rebounding Treasury yields and stocks and holding below tenkan and kijun hurdles by 114 nL1N2SS1CH.
Prices pierced the 10-day moving average and 38.2% of the late November tumble at 113.68 with a 113.78 high on EBS, but there's clearly unease about selling the haven yen until more is known about Omicron and next week's central bank meetings.
AUD/USD and other high-beta currencies capitalized on the broad rebound in risk, aided by the PBOC's RRR and relending facility cuts to start the week nL1N2SS067.
That regardless of the RBA keeping policy unchanged at Tuesday's meeting.
Bitcoin and ether were mixed, not getting much lift from the S&P 500 and STXE 600 gaining more than 2% and the N225 having its best day in a month, up 1.89%, though still well off recent highs.
An Indian bill banning crypto payments may be back of mind for some nL4N2SS0HN.
Wednesday features a BOC meeting and U.S. JOLTS data, though the week's main data event is Friday's CPI report as a lead-in to next week's Fed meeting.
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