US dollar drifts higher; safe havens plummet; cyclical currencies appreciate
The dollar gave up some ground early in Tuesday’s trading session as investors’ risk appetite soared amid subsiding fears over the impact of the Omicron variant on global economic growth. However, the greenback recovered and stormed higher later in the session supported by surging US Treasury yields.
The Japanese yen and Swiss franc are trading lower today as the rebound in investor sentiment has posed a considerable threat to their safe haven demand. On the other hand, commodity-linked currencies such as the aussie, kiwi and loonie are the absolute winners in the forex spectrum, significantly benefiting from rising commodity prices.
The euro and British pound are in the red today as increasing cases of the Omicron variant in both Europe and the UK overshadowed the broader market optimism. In addition, the dovish rhetoric of both central banks, alongside the Brexit woes over the Northern Ireland protocol seem to be weighing on both currencies.
Wall Street set for a positive open as Omicron fears fade
US stock markets are expected to resume yesterday’s rally, as futures for the major US indexes are edging higher in pre-market trade. Stocks linked to the reopening of economies, such as airlines, are the primary driving force behind this jump, with an increasing number of reports claiming that the new Omicron variant is likely to be less damaging to the global economy than previous strains.
Overnight, the risk-on sentiment pushed major Asian markets much higher, while major European markets are also ramping up in the current session.
Oil surges; gold holds firm
Oil prices extended yesterday’s gains as worries about a hit to oil demand due to the Omicron variant waned. Also, the fading possibility of a supply increase from Iran after talks to revive the nuclear deal stalled on Friday acted as a further tailwind for the commodity. Despite being pressured by rising Treasury yields, the stronger dollar and the improving risk sentiment in the markets, gold is trading marginally higher in today’s session.
Geopolitics
The US and its European allies are weighing sanctions targeting Russia’s major banks in case Russia attempts to invade Ukraine. In response, President Vladimir Putin threatened to cut energy supplies to Europe, if they intervene in what he sees as a vital matter of national security. With the midterm elections approaching in the US, President Joe Biden is under pressure to resolve the issue without any military intervention as it would likely damage his popularity.
