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Sunday, January 23, 2022
Trading

Dollar snaps losses as volatility begins to fade

Dollar

The dollar index snapped two days of losses and edged a little higher on the day to 96.538

The Australian and New Zealand dollars on Wednesday gave up some of their gains from the day before, as a rally in riskier asset classes began to lose steam, though moves were muted as traders started to head out for the holidays.

The Australian dollar shed 0.3% to $0.7130 and the New Zealand dollar lost 0.3% to $0.6747, having both advanced sharply the day before.

With small declines in the pound — also a beneficiary of Tuesday’s rally — and the euro, the dollar index snapped two days of losses and edged a little higher on the day to 96.538, though it was still well within its recent ranges.

The weeks on either side of Christmas are typically low in volatility for currencies and other asset classes, analysts at ING said, though this year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions.

Last week Britain became the first G7 economy to raise interest rates since the onset of the pandemic, with the U.S. Federal Reserve also signalling plans to tighten in 2022 and the European Central Bank (ECB) only slightly reining in stimulus.

Investors’ expectations that the Federal Reserve will raise interest rates more aggressively in 2022 than most other major central banks mean the dollar index is looking at close out 2021 not too far from its 16-month high of 96.938 last month.

The index is up 7.3% this year, which would be its best year since 2015.

Omicron continues to keep traders on edge and infections are multiplying across Europe, the US and Asia, causing countries across the globe to consider new curbs on movement and ramose quarantine periods for incoming visitors.

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