The US dollar regains ground on Monday, reversing part of losses incurred ahead of the weekend despite massive risk aversion amid rising worries about a new Covid variant. As such, the USD index climbed back to the 96.40 area earlier in the day before erasing some gains during the European hours. Should the prices hold into gains in the near term, the 2021 peaks, followed by the 97.00 figure, would come back into the market focus.
Against this backdrop, the common currency retraced some of Friday’s gains to get back below the 1.1300 figure. However, the downside potential looks limited as well. As long as there is heightened uncertainty surrounding the new Omicron coronavirus, including its impact, the European currency will likely struggle to witness a solid recovery. If sellers return to the market, the EUR/USD pair could revisit this year’s lows around 1.1185 seen last week.
On the other hand, should the virus spread across the globe, the Fed may take a less hawkish stance on the outlook for its monetary policy. In this scenario, the greenback could come under broader pressure despite its safe-haven status.
In this context, traders will closely follow new comments by the Federal Reserve officials as well as the upcoming economic data. Of note, the critical report put of the United States is due on Friday, when the NFP employment and wages figures would set the tone for USD pairs and global markets in general.