The U.S. dollar climbed higher, and the Japanese Yen steadied on Monday. On the other hand, the Euro tumbled down. Still, forex markets calmed after the initial shock of discovering a new Covid-19 variant, reversing some of Friday’s moves.
First detected in southern Africa, the Omicron variant of the coronavirus triggered global alarm. As a result, financial markets sold off on Friday on fears that the virus would disrupt the economic recovery after the two-year Covid pandemic. According to the World Health Organization, scientists don’t know yet whether Omicron, which has been found worldwide, is more transmissible than other variants. They also don’t have information about it causing more severe symptoms than the other versions of coronavirus.
Despite the new wave of panic that this news caused initially, markets calmed a little on Monday. The U.S. stock futures and oil prices rebounded as traders took a more balanced view. The market players are waiting for the impact of the variant to become more apparent.
On Monday, the U.S. dollar index gained 0.1%, at last trading at 96.326 against the basket of six major currencies. On Friday, it had experienced its most significant one-day drop since May, though.
Typically, the dollar benefits from uncertainty due to its safe-haven status. However, it plummeted on Friday because traders thought that the Omicron variant could affect the Federal Reserve and other major central banks’ decision to raise rates.
What about the Euro?
The common currency, which soared versus the greenback on Friday, dropped by approximately 0.4% at $1.12665 on Monday. Ulrich Leuchtmann, Commerzbank’s head of FX and commodity research, thinks that it had initially benefited from the Omicron variant due to the dovishness of the European Central Bank. He noted that if Omicron causes fresh lockdowns and a renewed reduction in economic activity around the globe, all rate hike expectations turn out to be in vain. Thus, the markets will price them out again pretty quickly. In that scenario, the relative winners will be those currencies whose rate hikes were never priced very much in the first place. Leuchtmann considers EUR, JPY and CHF as such.
The Swiss franc reversed recent moves, declining during Monday’s session. On Friday, it had skyrocketed, experiencing its biggest one-day rally versus the greenback since June 2016. It even gained slightly more than at the peak of the first covid-induced market shock in March 2020 during that session. However, the franc plummeted down by 0.4% today, trading at 0.9256 at last.
Meanwhile, the Japanese yen steadied. It overall edged up by 0.2% on the day against the dollar, exchanging hands at 113.33. The Euro hit a new nine-month low against the currency, though.
What do the experts say?
According to analysts, forex markets would probably remain volatile until the new virus variant is better understood. Nomura analyst Jordan Rochester noted over the next two weeks, the most critical headline to watch out for will be vaccine efficacy results and whether Omicron’s symptoms are different from that of other variants.
At the same time, Goldman Sachs stated that it doesn’t plan to change its economic forecasts based on the new covid variant until its likely impact becomes more explicit.
On Friday, BioNTech announced that it might know within two weeks if Pfizer and it need to rework the vaccine they have developed.
In Asia, South Africa’s rand and stocks soared on Monday, rebounding after worries about the Omicron triggered sharp falls last week. Moreover, in Turkey, President Erdogan’s orders for an investigation into currency manipulation hit Turkey’s lira.
In South Africa, several countries barred travel in and around the region in response to discovering the new covid variant. That caused their assets to plunge in red.
On Monday, the rand surged forward by 1.3%, after dropping by 2% to 16.36 against the greenback in the previous session. In addition, South Africa’s blue-chip stock index rose by 1.2%.
Analysts at Deutsche Bank stated that Omicron could still prove less deadly. However, if this variant is more contagious, it could cause similar healthcare issues, especially if existing vaccines are less protective.
The Turkish lira declined by 2% versus the dollar. On the other hand, Russia’s rouble gained 1% against the greenback. Most central and eastern European currencies, including the Polish zloty, Hungary’s forint, and Czech crown, climbed higher than the Euro.