Dollar quiet as central banks set to meet again

Dollar quiet as central banks set to meet again

HONG KONG, Dec 13, Reuters -- The dollar was quiet at the beginning of a week in which central bank meetings, including by the Federal Reserve, will likely drive currency markets, while sterling fell slightly after Boris Johnson warned about the impact of the new COVID 19 variant.

The dollar index, which measures the dollar against a basket of six major peers, was down from as high as 96.938 in mid November, before news of the omicron variant of the new coronaviruses became widespread.

On Monday, the euro was higher to $1.1316, while the yen lost ground to 113.51 per dollar.

The pound dropped by 0.1% to $1.3257 after British Prime Minister Johnson said on Sunday that Britain is facing a tidal wave of the Omicron variant of coronavirus and that two vaccine doses won't be enough to contain it.

Markets have swung since the new strain emerged due to concerns that it could have a major impact, initially driving flows to safe-haven assets. Reports that it may not be as bad as feared caused these flows to reverse last week.

There is a research note from Barclays that says all I want for Christmas is clarity.

The major scheduled events for currency markets this week are central bank policy meetings, with six of the G 10 central banks and a number of emerging-market central banks set to meet, as well as breaking news about the Omicron variant.

The Barclays analysts said that central banks will need to strike a balance between Omicron uncertainty and elevated inflation levels.

The Federal Reserve's two day meet is the most important one and will wrap up on Wednesday.

According to investors, the Fed is expected to announce an acceleration of its bond buying programme, opening the door to at least one interest rate hike next year.

According to the FedWatch program, traders are expecting a more than 50% chance of a rate hike by May 2022, according to the CME Group.

An acceleration of tapering would likely support the dollar compared to currencies with central banks that will likely be slower to tighten.

The Fed meeting could be the catalyst for EURUSD to break down to 1.10. The investors may prefer to wait for the ECB to make a decision on the move. ING analysts said that the USD JPY could also be pressing 115 post Fed.

The European Central Bank and the Bank of Japan will review their policy settings this week. Market players are starting to talk about the possibility of the European Central Bank turning more hawkish, while the BoJ is likely to remain dovish.

The Bank of England and the Norwegian and Swiss central banks are also holding meetings.

After the world's largest coin climbed a bit over the weekend, it was trading just under $50,000, but still has work to regain November's record high of $69,000.