Dollar index rises against the dollar as markets rally

Dollar index rises against the dollar as markets rally

The dollar index, a measure of the currency against six major rivals, was 0.217% higher at 96.261.

The dollar was trading lower during the overnight session, as riskier currencies rallied, but the dollar increased after 9 a.m. Eastern time when data showed U.S. home prices rose 1.1% in October from September and were up 17.4% year-over-year.

Joseph Trevisani, senior analyst at FXStreet, said that we just got a reminder that what we're really dealing with is inflation and what we're dealing with is the Fed.

Fed funds futures are pricing better than 50% of the odds for a first quarter-point rate hike by March, odds that were unheard of just two weeks ago, Trevisani said.

The Fed said in a policy statement on December 15 that it would end its March bond purchases and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022, as the economy nears full employment and inflation continues to surge.

The safe-haven yen touched a nearly one-month low against the dollar during the Asian session, as global stock markets followed Wall Street higher.

The Japanese currency was weakened as far as 114.935 yen per dollar, its lowest since Nov. 26, before recovering to last trade around 114.795.

Retail sales data on Monday eased worries that the highly infectious Omicron coronaviruses variant would scupper the economic recovery, as the S&P 500 opened at a new record high.

Markets are optimistic that the fallout from Omicron will be contained, said Osamu Takashima, head of the G 10 FX strategy at Citigroup Global Markets Japan.

The fact that the U.S. equities rallied despite expectations for faster Fed tightening implies that investor risk appetite must be very strong, he said.

The AustralianAustralian dollar, which is considered a liquid proxy of risk appetite, rose to $0.7263, its highest level since November 22, before pulling back to last trade at $0.7224.

The pound, which often rises when risk sentiment improves, touched a one-month high of $1.3461 and fell to $1.3420 against the strengthening dollar.

The price of cryptocurrencies fell below $50,000 and was down 3.92%.