Credit Agricole CIB Research flags 2 headwind factors for the USD in the near-term.
"The impact of the new virus variant omicron on individual G10 currencies will depend on two key factors in our view. The first is the advancement of their respective vaccination campaigns and the level of the already existing lockdown restrictions. In turn, these can determine Covid’s impact on their relative economic outlook. The second factor is the degree of policy normalisation that has been already priced in for each of the currencies. Indeed, the omicron variant could keep threatening policy divergence trades, hurting FX carry-investment while helping funding currencies," CACIB notes.
"A G10 ranking based on these criteria suggests that the USD could be the most vulnerable currency given the US’s relatively low vaccination rate and still non-negligible lockdown restrictions in place," CACIB adds.