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Dec 08 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rallies As Dollar Loses Haven Appeal

By Paul Spirgel  —  Dec 08 - 02:46 PM

The dollar fell on Wednesday, reversing recent Omicron-related haven buying as markets remained enthralled by preliminary reports indicating the severity of the new variant may be less than prior iterations and Pfizer comments that a three-shot course could provide protection nL1N2ST0Q6.

The dollar index was down 0.42% at 95.875, deriving no support from JOLTS data showing the labor market was tighter than expected in October.

job openings surged in October while hiring decreased, adding to evidence of a worsening worker shortage that could hamper employment growth and the overall economy.

Market trends have also become muddled by the approach of two high-profile risk events -- Friday's U.S. inflation report and next week's Fed meeting -- along with the thin liquidity that usually accompanies the year-end period.

The U.S. yield curve bucked its recent flattening trend, steepening after JOLTS data and the BoC’s rate hold and less-hawkish-than-expected guidance.

EUR/USD rose 0.67% to 1.1344 aided by broad long USD haven unwinds and EUR/GBP cross buying in anticipation of the tougher COVID-19 restrictions British Prime Minister Boris Johnson imposed in England on Wednesday -- ordering people to work from home, wear masks in public places and use vaccine passes in a bid to slow the spread of the Omicron coronavirus variant nL8N2ST2N8.

UK-euro zone rate differentials are narrowing as the restrictions add to near-term uncertainty about UK rate hikes and push expectations out the curve.

USD/JPY rallied to 113.96 in early NorAm on Omicron haven unwinds, matching Nov.
29 highs, but dollar bulls were unable to sustain gains.

A broad wave of dollar selling pushed USD/JPY lower to 113.69 in late-U.S.
, though diverging U.S.-Japan rate differentials should keep it bid in the near-term.

GBP/USD put in a new 2021 low at 1.3162, reacting to UK lockdown talk and a further reduction of odds on a BoE rate hike.
Diverging U.S.-UK rates kept the pound on the backfoot versus the dollar, while converging UK-euro zone rate differentials lifted the EUR by 0.76% versus the pound.

AUD/USD moved was trading at 0.7177, up 0.82% in late-U.S.
China’s RRR cut, diminished Omicron angst and the RBA's upbeat economic outlook helped boost Aussie above its 10-DMA at 0.7092, putting the 30-DMA at 0.7274 in sharper focus.

USD/CAD whipsawed after the BoC held rates steady, rising from its post-meeting flash low at 1.2607 to session highs by 1.2667 before reversing to stand 0.02% higher at 1.2645.
While no rate change had been expected, some traders had positioned for a more aggressive tack on early rate hikes.

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Refinitiv IFR Research/Market Commentary


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