FOREX-Dollar weakens as Treasury yields fall; Omicron is worried
By Saqib Iqbal Ahmed and Elizabeth Howcroft
NEW YORK, December 20 (Reuters) – The dollar fell slightly on Monday as traders lowered US Treasury yields over the medium term following a blow to prospects for approving Democratic climate and social spending legislation in Washington and concerns about the continued spread of the Omicron coronavirus variant.
US dollar currency index = USD was 0.1% less than 96.532. The index, up around 7% over the year, has recovered in recent weeks.
“I think there’s a lot of year-end flow right now,” said Kathy Lien, CEO of BK Asset Management. “With the fear of Omicron, with stocks dropping quite a bit, people are just liquidating and preparing for the year.”
U.S. Senator Joe Manchin, a conservative Democrat who is key to President Joe Biden’s hopes of passing a $ 1.75 trillion domestic investment bill, said on Sunday he would not back the package, attracting a harsh rebuke from the White House.
Manchin appeared to deal a fatal blow to Biden’s domestic policy bill, known as Build Back Better, which aims to extend the social safety net and tackle climate change.
For Treasury investors, this likely meant issuing less government debt and perhaps less pressure on the US Federal Reserve to raise interest rates. The yield on the three-year Treasury bill was 0.8936%, down 3.2 basis points in the late afternoon.
Goldman Sachs cut its quarterly GDP forecast for 2022, lowering the US GDP forecast for the first quarter of 2022 to 2% from 3%, ignoring the fact that Build Back Better would become law, and lowered the Q2 outlook at 3% from 3.5%, and its Q3 forecast at 2.75% against 3%.
With last week’s series of big central bank meetings over, investors have focused on the rapid spread of the Omicron variant.
The Netherlands entered detention on Sunday and local newspapers in Italy reported further restrictions were being considered there as well.
“Investor risk sentiment was undermined by new evidence over the weekend of the disruptive impact of the new Omicron COVID variant,” wrote Lee Hardman, currency analyst at MUFG, in a note to clients.
Fears that further restrictions will be imposed in Europe to contain Omicron have also weighed on investor appetites for riskier currencies.
Australian dollar AUD = fell 0.2%.
The pound GBP = fell 0.3% to a five-day low, struggling to stay above $ 1.32 against the dollar as a sense of risk aversion swept through financial markets and pressure increased on policymakers to slow the spread of Omicron.
Turkish lira TRY = made a massive turnaround on Monday night after President Erdogan introduced a series of measures that he said will ease the burden of the struggling currency on Turks, while promising to continue the low rate policy that led to the fall of the currency.
Meanwhile, bitcoin BTC = changed little that day at $ 46,939.87.
Global exchange rateshttps://tmsnrt.rs/2RBWI5E
(Reporting by Saqib Iqbal Ahmed and Elizabeth Howcroft; editing by Ana Nicolaci da Costa, Jason Neely, Mark Heinrich and Jonathan Oatis)
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