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US dollar drifts higher; traders eye non-farm payrolls

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The dollar edged higher on Thursday in choppy trading as risk appetite improved with higher US stocks, although investors remained worried about the fast-spreading Omicron coronavirus variant and the speed at which the US Federal Reserve will taper its asset purchases.

The US currency’s moves were limited though, as investors looked ahead to Friday’s non-farm payrolls report for November.

“A really strong payrolls report as we’re projecting could be another element to re-asserting the dollar,” said Mazen Issa, senior FX strategist at TD Securities in New York.

Wall Street economists have estimated the US economy created 550,000 new jobs last month, a Reuters poll showed.

In afternoon trading, the dollar index, which tracks the greenback against six major currencies, rose 0.1% to 96.131.

The index dropped last week after news of Omicron first emerged, although it remains close to a 16-month high of 96.938 hit last month.

On Thursday, the United States recorded its second case of the Omicron variant, but that has had muted impact on stocks and other risk assets.

“Anecdotal evidence seems to suggest that it may not be as severe as many people feared,” said TD’s Issa.

“If there’s anything to take away from all of these is that the impact of the virus’ successive waves tends to be less and less the longer it goes. Yes, it’s still a risk, but vaccine makers are able to adjust to address it,” he added.

The United States and Germany joined countries around the globe planning stricter COVID-19 restrictions on Thursday.

The dollar rose 0.4% versus the yen to 113.155.

The greenback earlier gained after US data showing initial claims for state unemployment benefits rose 28 000 to a seasonally adjusted 222 000 for the week ended November 27, lower than the forecast of 240 000.

Sterling, meanwhile, rose 0.2% to $1.3298, while the euro slipped 0.2% to $1.1294.

Scotia Bank, in a research note, highlighted the euro’s allure as “a semi-haven currency.”

Since the Omicron story broke last week, the euro has gained 0.9% versus the dollar.

However, Scotia expects the euro to weaken toward the $1.10/11 zone given weak near-term economic and rates fundamentals, although virus uncertainty should keep it in a $1.12-$1.14 range for now.

Currency volatility trackers remain at multi-month highs, suggesting big moves could still be in store, analysts noted.

Traders are also awaiting clarity on how quickly the Fed will taper its asset purchases, as central banks around the world grapple with how to unwind stimulus amid soaring inflation.

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

Several Fed officials – Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin, and San Francisco Fed President Mary Daly – on Thursday echoed Powell’s comments.

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