Dollar jumps after Omicron fears eased

Dollar jumps after Omicron fears eased

The dollar went up on Friday after a calmer tone in markets as fears over Omicron's impact eased, but currency moves were muted ahead of a key U.S. payrolls report that could clear the path to earlier Federal Reserve interest rate hikes.

Scientists in South Africa, where the Omicron variant was first discovered last month, said existing vaccines should still protect against severe disease and death. The three Omicron cases identified in the U.S. all showed mild symptoms.

Elsewhere, Fed officials have joined Chair Jerome Powell in striking hawkish stances, with San Francisco Fed President Mary Daly saying it may be time to start crafting a plan to combat inflation, and Richmond Fed President Thomas Barkin expressing his support for normalizing policy. Tapas Strickland, a director for economics at National Australia BankAustralia Bank, wrote in a client note that the Fed talk overnight was uneniably hawkish.

Strickland said that Omicron headlines were net positive overnight, helping risk sentiment to recover, but with the first assessments of the efficacy of current vaccines probably still a week or so away, expect ongoing volatility.

The dollar index was higher for a third day, rising 0.03% to 96.117. The dollar is little changed for the week despite a steep drop on Tuesday. Friday of last week, the index had plunged 0.70%, the most since May.

Powell said in testimony to Congress on Wednesday that he and fellow policymakers will consider swifter action at their December 14 -- 15 meeting.

According to a Reuters poll, the United States created 550,000 jobs last month, continuing a run of strong data.

Money market thinks that the Fed will raise the target rate by a quarter point at its June meeting.

The dollar fell by 0.09% to 113.10 yen on Friday, but that came after a 0.4% gain overnight.

The euro was barely changed at $1.13025, consolidating after it dropped to an almost 17 month low of $1.1186 last week.

Both the European Central Bank and Reserve Bank of Australia have been dovish in their stances, pushing back against market bets that policymakers will have to bow to inflationary pressures.

In a report from Commonwealth Bank of Australia strategist Joseph Capurso said that near term AUD moves will be driven by Omicron and the risk remains below $0.7000.

For Friday, the U.S. labor market takes centre stage, and should keep currency markets quiet, Capurso said.