Dollar edges off peak as inflation forecast boosts stocks

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Dollar edges off peak as inflation forecast boosts stocks

SYDNEY, Dec 6 Reuters -- The dollar edged off last week's peaks against riskier currencies on Monday as concerns about the Omicron variant seemed to ebb, but an expectation of inflation driving the U.S. interest rates higher kept the greenback firm against the euro.

The growth-sensitive Antipodeans attempted a bounce in Asia after preliminary observations from South Africa showed that Omicron patients had relatively mild symptoms.

The Aussie was up 0.3% to $0.7023 from a 13 month low. The kiwi went up 0.2% to $0.6756, a gain of 0.2% from a 13 month low on Friday.

After a weekend walloping, Cryptocurrencies went up and Bitcoins found support around $49,000.

The safe haven yen was easing 0.1% to 113.00 per dollar with a cautiously optimistic mood, though a bumpy ride ahead looms with trade sensitive to Omicron news and Friday's U.S. inflation data.

Omicron headlines are moving in the right direction, and the risk-off sentiment may be off soon, said analysts at the OCBC Bank in Singapore.

Early observations in South Africa suggest that those infected with Omicron have relatively minor symptoms compared to previous virus waves.

Anthony Fauci, the top U.S. infectious disease official, told CNN that there was not a great degree of severity to it. The euro fell 0.2% to the $1.1289 level and sterling was steady at $1.3234.

China's yuan held steady at 6.3700 per dollar even after state media foreshadowed policy easing as investors reckoned China's trade surplus would keep the currency supported.

Omicron aside, the backdrop and weeks ahead provide plenty for traders to be nervous about - reflected in the volatility gauges on the battered Aussie and kiwi hitting multi-month highs on Monday.

OCBC expects investors to shift their focus to central bank meetings in Australia and Canada next week ahead of U.S. inflation data on Friday that could affect the rates outlook in the United States. The Bank of England, the Federal Reserve and the Bank of Japan all meet next week.

A mixed U.S. jobs report last week did not shake market expectations of a more aggressive U.S. tightening and the consumer price report due on Friday as another case for an early tapering and a stronger dollar.

The U.S. dollar index was at 96.211 during the week, which is within the range of November's 16 month peak of 96.938.

The futures market is almost fully priced for a hike to 0.25% by May and 0.5% by November.

The longer-term rates have remained stubbornly low because investors bet that an earlier start to hikes will mean slower economic growth and inflation over time and a lower peak for the funds rate, something analysts think might change.

The dollar will go up as markets price in more rate hikes, said Kim Mundy, Commonwealth Bank of Australia strategist. This week's November CPI data could cause markets to price in a more aggressive tightening cycle.