US yen falls on hopes Omicron variant will not derail recovery

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US yen falls on hopes Omicron variant will not derail recovery

Nov 30 Reuters -- The safe-haven yen gave up some of the gains it made during the market ructions on Tuesday, as investors traded on hopes that the Omicron coronaviruses variant would not derail a global economic recovery as originally feared.

The dollar was as high as 113.89 yen during the Asia morning, after it plunged on Friday after news about the potential spread of the Omicron variant of the new coronaviruses emerged.

It was last at 113.65, up from Monday's two week low of 112.97.

Traders have taken comfort from very early hints that Omicron will be milder than feared as well as from remarks by President Joe Biden that the United States would not reinstate lockdowns.

At the same time, the World Health Organization warned of a very high risk of infection surges from Omicron, and countries around the world have reacted quickly to tighten border controls.

Ray Atrill, head of FX strategy at NAB, said that the market wants to buy into the optimism that it's not going to be too bad, but every scientist - as opposed to economists pretending to be epidemiologists - is telling you it's going to be a couple of weeks before we can draw that conclusion.

The global shares have rallied, particularly in the U.S. and Europe.

The Australian dollar gained to $0.7144, up from Monday's three month low of $0.7109, with an unexpected pick up in China's factory activity in November also being a factor in the mood.

The pound was little changed at $1.3324, while the euro was flat at $1.1297.

The single currency fell to a nearly 17 month trough of $1.11864 last week, as European Central Bank policy makers stuck to their dovish stance in the face of heated inflation.

The latest reading on consumer prices in the euro area is due later Tuesday.

Before Omicron arrived, the main driver of currency moves was how traders perceived the different speeds at which central banks would end the pandemic era stimulus and raise interest rates hoping to combat rising inflation without choking off growth.

In testimony for Congress later Tuesday, Fed Chair Jerome Powell said that Omicron could cause inflation pressures to last longer.

That would potentially speed up the need for rate hikes whereas traders initially reacted to Omicron's discovery by pushing back bets for Fed tightening because of the risk to growth.

Money markets are seeing a first rate rise in July, but one is not fully priced until September.

Looming Fed rate hikes had previously supported the dollar.

The dollar weakness we saw on Friday shows that the strength of the dollar was more a result of Fed thinking and Fed pricing. On any other day, you would have expected the US dollar's safe haven credentials to have been prominent, Atrill said.

The dollar index, which measures the currency's performance against six major rivals, was last traded at 96.148, up from a low of 95.973 on Friday, when it suffered its biggest one-day drop since May.

China's yuan strengthened to a two-week high against the dollar on Tuesday and was poised for a fourth straight month-on-month gain, underpinned by persistent corporate demand and signs of tightness in the money markets.