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U.S. Dollar Rumbles On Powell, Omicron News

By Kathy LienForexNov 30, 2021 05:32PM ET
www.investing.com/analysis/dollar-rumbles-on-powell-omicron-news-200610015
U.S. Dollar Rumbles On Powell, Omicron News
By Kathy Lien   |  Nov 30, 2021 05:32PM ET
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Currencies and equities sold off sharply today after Federal Reserve Chairman Jerome Powell said: “It is time to retire the word transitory regarding inflation.” Investors bid up the U.S. dollar, but having sold off before Powell’s announcement, the greenback was unable to turn positive against all of the major currencies.  
 
Today’s announcement is significant because investors have been waiting months for the Fed chair to admit that high price pressures may linger for longer – something other central bankers have given into. Powell does not see inflation subsiding until the second half of 2022, which is why the central bank will talk about speeding up taper at its next meeting on Dec. 14-15. It may even need to consider ending taper a few months sooner than anticipated. 
 
What makes today’s announcement so important is the timing. The COVID-19 Omicron variant is a serious risk that many scientists are still struggling to understand. As Powell put it, we won’t know more about Omicron for another week to 10 days. The Fed could have easily waited another week before making this significant shift in forward guidance, but its decision not to wait is a reflection of how worried it is about price pressures accelerating and how desperately it felt the need to prepare the market for policy change (pace of taper) next month.
 
Although Powell was quick to add that these assumptions do not include the risk of the Omicron variant, which it will know more about in a few weeks, it is clear from his comments today that as long as it does not cause new lockdowns in the U.S., it will normalize monetary policy quicker. Investors can expect upgrades to next month’s inflation forecasts along with more “dots” moving in favor of rate hikes next year.  
 
While the prospect of less stimulus is generally positive for the U.S. dollar, the combination of weaker economic data and ongoing Omicron concerns will limit its gains. Instead, the Japanese Yen and Swiss Franc should be the biggest beneficiaries of Powell’s comments. Consumer confidence and the Chicago PMI index dropped more than expected in November, and with Omicron, we have every reason to believe that sentiment will sour further.
 
Traditionally, the U.S. dollar catches a safe-haven bid from bad news, but instead of rising, the greenback weakened after Moderna’s CEO said it is very likely that current COVID-19 vaccines will be less effective against the Omicron variant. The explanation for this counterintuitive move is simple – it is only a matter of time before cases of the Omicron variant are found in the U.S., at which point everyone will begin speculating about the local and national response. Even if new restrictions and lockdowns do not return, consumers could retreat before the holidays, leading to less shopping, cancelled trips and a reduction in other end-of-year expenditures. The risk to the U.S. economy could be significant, which explains why some investors are selling first. 
 
The euro was the best-performing currency behind the Japanese Yen and Swiss Franc, which is surprising as European nations are the most likely to come down hard with restrictions. There’s already a full lockdown in Austria and Slovakia, with partial lockdown in the Netherlands. Belgium and Portugal announced new restrictions, while France requires masks for all indoor activities. Pressure is growing for tighter restrictions in Germany. Yet, stronger Eurozone inflation and German labor market numbers kept the euro supported and prevented it ending the day lower against the greenback. 
 
Between falling oil prices and a rising U.S. dollar, the Canadian dollar was hit the hardest. Over the past month, the price of crude has fallen from a high of nearly $85 a barrel to a low $64.45, the first time WTI crude trades below $65 in three months. Omicron has already made its way into Canada, with five reported cases. While Canadian labor market numbers are expected to improve, the plunge in oil prices combined with the demand for U.S. dollars should keep the loonie under pressure.
 
On the calendar for Wednesday will be Australian’s third quarter GDP report, revisions to Eurozone and U.K. PMIs, ADP, ISM Manufacturing index and the Federal Reserve’s Beige Book report.  While important, these numbers may have limited impact in light of Powell’s comments, which along with Omicron headlines, will continue to drive risk appetite and FX flows.
U.S. Dollar Rumbles On Powell, Omicron News
 

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U.S. Dollar Rumbles On Powell, Omicron News

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Comments (17)
Sriharaj Gold
Sriharaj Gold Dec 03, 2021 10:34AM ET
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Seem that someone make fake on usdx price
keyvan chegini
keyvan chegini Dec 03, 2021 12:29AM ET
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thank you🌹
Adnan Har
Adnan Har Dec 02, 2021 6:14AM ET
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Thanks Kathy , great article
AITradesFX Com
AITradesFX Com Dec 01, 2021 7:36AM ET
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Always great assessments of the situation.  I a wait for interest rate hikes to start rolling in!! At last!!
Fauzi Ghozali
Fauzi Ghozali Nov 30, 2021 11:30PM ET
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Thanks for review. I love this.
Aaron Dade
Aaron Dade Nov 30, 2021 8:12PM ET
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I have been reading your articles for years and always have loved your writing. utmost respect for your career. Do we look at the dollar as buy on dips?
Ronaldo Almeida
Ronaldo Almeida Nov 30, 2021 8:10PM ET
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The USD did climbed against BRL (here in Brazil). But that's easy to do.
James Pattison
James Pattison Nov 30, 2021 8:09PM ET
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She writes well. And i love the list of fan boys who drool over her articles… one question… if powell admits inflation is a problem… and it is not teansitory… why are we waiting at all for interest rate hikes… do we not understand the horrible impact this inflation is having on low wage earners??
Ronaldo Almeida
Ronaldo Almeida Nov 30, 2021 8:05PM ET
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Very well written and to the point. After Powell's comments I expected a skyrocketing dollar. Never came. Now I see what happened.
Sachin Kala
Sachin Kala Nov 30, 2021 7:56PM ET
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Good Kathy.
Aminu Dramani
Aminu Dramani Nov 30, 2021 7:32PM ET
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nice
Philip Galindo
Philip Galindo Nov 30, 2021 6:43PM ET
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American dollar 💸💰 not backed by gold anymore federal reserve note America is big debt to other Nation but USA still has real gold bars at Fort Knox God Bless America Let Make America Great once Again United we stand although America is divided by partisan politics Libertarian Independents Rebulican and Democrats *****
Paizal Apai
Paizal Apai Nov 30, 2021 5:49PM ET
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why put fear by manipulating Omicron news 🤔
Godswill Jacob
Godswill Jacob Nov 30, 2021 5:46PM ET
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Let's see how we start the new trading day... Aussies and Yennies 🤞
Mir Chang
Mir Chang Nov 30, 2021 5:46PM ET
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Hope you make some money.
Ali Akeel
Ali Akeel Nov 30, 2021 5:43PM ET
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Its that mean the candian dollar will fall or not ????
William Bailey
William Bailey Nov 30, 2021 5:42PM ET
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Fed simply trying to shift blame , but the real threat to the “ economy” ( i mean the Fed’s economy , the stock market) is inflation from rolling intergovenmental treasuries to citizens stim checks … meanwhile , banks are running low on treasuries to sell along with tbe fact the inflation will require high yields on treasuries or banks wont buy more debt!! Catch 22 ibiots
Mart Mala
Mart Mala Nov 30, 2021 5:40PM ET
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well put👍
 
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