The dollar index stabilized above 96 points on Tuesday as investors still seem to be calculating concerns about the omicron option and its impact on possibly higher US interest rates.
Atlanta Federal Reserve President Raphael Bostic was the latest in a growing number of Fed officials declaring themselves open to accelerating the pace of tapering the quantitative easing program, after expressing hope that the U.S. economy's momentum will carry it through the next wave of pandemonium. He also reaffirmed the possibility of at least two rate hikes next year if inflation remains elevated. Meanwhile, Fed Chairman Jerome Powell told the U.S. Congress on Monday that the omicron option poses a risk to the economy, citing the risk of declining employment and economic activity and increased uncertainty for inflation. Meanwhile, Moderna CEO Stephane Bancel told the Financial Times that existing vaccines will be less effective against the omicron variant, while Morgan Stanley does not expect any US interest rate hike in 2022.
The sell-off seems to be continuing in the crude oil and stock index futures markets. The price of a barrel of WTI crude oil appears to have fallen to $67, while Brent is down to $70, which is more than $10 lower than last week. Futures on popular stock indices such as the DAX and S&P 500 appear to have lost more than 1 percent today, while Japan's Nikkei has chugged more than 2.5 percent. Turning to the oil market, expectations continue unabated that OPEC+ will hold off on plans to increase oil supplies in January amid uncertainty over the omicron option and its likely impact on the global economy and fuel demand. The option is likely to trigger fears of further blockades and travel restrictions and has contributed to concerns about a projected excess oil surplus early next year after major oil-consuming countries release strategic reserves. Analysts say such a development could easily justify a production halt or even a small cut by OPEC+. Meanwhile, traders are also monitoring the possibility of Iranian oil returning to the markets after positive comments from diplomats who resumed talks on the Iran nuclear deal on Monday.
Uncertainty in the markets and increased volatility may still persist until more information is released about the new variant of the coronavirus. For the moment again, the Swiss franc or Japanese seem to be safe havens along with US treasury bonds, while currencies linked to commodities seem to be under pressure. In such an environment, the upcoming Fed decision, which will be announced in several days' time together with the latest macroeconomic projections, which may indicate the pace of rate hikes in 2022, may look interesting.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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