Dollar on back foot as Treasury yields soften, Omicron keeps markets on edge

HONG KONG, Dec 21 (Reuters) – The dollar hovered below recent highs on Tuesday having lost ground overnight after a blow to Democratic spending plans in Washington, but worries about the Omicron coronavirus variant kept risk currencies in check.

The dollar index , which measures the currency against six major peers, was last at 96.513, having lost ground on both the euro and the yen .

The greenback briefly approached 16-month highs at 96.914 last week, after the U.S. Federal Reserve opened the door to as many as three interest rate increases in 2022, and then found support as worries about the Omicron strain caused investors to seek safety.

However, it pulled back on Monday, finishing the session down 0.12% after U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden’s hopes of passing a $1.75 trillion domestic investment bill – known as Build Back Better – said on Sunday he would not support the package.

“The dollar pulled back on the breakdown of Build Back Better. Less stimulus, weaker growth, and rates dropping at the short-end was enough to push the dollar slightly lower,” said Kyle Rodda, an analyst at IG markets.

Two-year U.S. Treasury yields on Monday touched 0.5870%, their lowest since Dec. 3, also causing the yield curve to steepen.

The pound was on the back foot at $1.3204 after British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the Omicron variant if needed.

Omicron infections, which are multiplying rapidly across Europe and the United States, and doubling every two or three days in London and elsewhere, caused a sharp sell-off in share markets on Monday as well as oil.

In a sign of the uncertainty, however, Nasdaq and S&P 500 futures both climbed on Tuesday in early Asia.

The Aussie dollar was weak at $0.71055, while the New Zealand dollar was testing 13 month lows at $0.6709.

Turkey’s lira had volatile day on Monday, even by its usual standards, first falling as much as 10% before ending the session up over 20% after President Tayyip Erdogan introduced a series of steps that he said would ease the burden of the weakened currency on Turks. read more

He also vowed to press on with a low-rates policy that led to the lira’s slide in the first place.

Bitcoin was comparatively quiet, just below $47,000 after trending lower for the past few weeks.

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Currency bid prices at 0039 GMT

Description	RIC	Last	U.S. Close Previous Session	Pct Change	YTD Pct Change	High Bid	Low Bid
Euro/Dollar		$1.1275	$1.1274	+0.02%	-7.71%	+1.1278	+1.1274
Dollar/Yen		113.6550	113.6400	-0.02%	+10.00%	+113.6700	+113.6200
Euro/Yen		128.16	128.11	+0.04%	+0.98%	+128.2000	+128.1200
Dollar/Swiss		0.9216	0.9214	+0.06%	+4.21%	+0.9219	+0.9210
Sterling/Dollar		1.3204	1.3210	-0.05%	-3.35%	+1.3211	+1.3204
Dollar/Canadian		1.2935	1.2944	-0.06%	+1.59%	+1.2944	+1.2934
Aussie/Dollar		0.7107	0.7110	-0.04%	-7.61%	+0.7111	+0.7102
NZ Dollar/Dollar		0.6707	0.6716	-0.16%	-6.63%	+0.6714	+0.6705

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJReporting by Alun John

Our Standards: The Thomson Reuters Trust Principles.

This article was originally published by Reuters.