The U.S. dollar showed resilience in early 2022 trading in London, despite a subdued start due to holiday closures across Asia Pacific markets and ongoing global concerns about the Omicron COVID-19 variant.
Subdued Trading in Asia Pacific
With markets in Japan, China, Australia, and New Zealand closed for holidays on Monday, trading volumes remained low, making it challenging to gauge true dollar movements. Thin liquidity contributed to a cautious market environment at the start of 2022.
Omicron’s Impact on Investor Sentiment
The global spread of the Omicron variant, with Johns Hopkins University reporting 290 million COVID-19 cases worldwide as of January 3, 2022, has driven investors toward safe-haven assets like the U.S. dollar. Despite declining cases in Xi’an, China, uncertainty continues to shape market dynamics.
U.S. Dollar Index Performance
The U.S. Dollar Index, which tracks the dollar against a basket of major currencies, rose 0.29% to 95.870 during early London trading. However, bearish pressure persists, with the index needing to break the 96-point support line to reach the 38.2% Fibonacci retracement of its October-November 2021 gains. The USD/JPY pair also gained 0.19%, reaching 115.30.
Dollar’s Strong 2021 Performance
The U.S. dollar marked its best year since 2015 in 2021, driven by a recovering U.S. economy and persistent inflation. The Federal Reserve’s hawkish shift, with anticipated interest rate hikes as early as March 2022, bolstered the dollar’s strength. Meanwhile, the Canadian dollar was the top performer against the greenback, remaining nearly flat due to expectations of tighter monetary policy from the Bank of Canada starting in January 2022.
Struggles for Yen and Euro
Japan’s yen was the weakest major currency in 2021, declining approximately 10% against the dollar. The euro, holding the largest weighting in the U.S. Dollar Index, fell just over 7%, impacted by the European Central Bank’s ultra-dovish monetary policies as the Fed accelerated its tapering and rate hike plans.
Looking Forward
As global markets navigate holiday-thinned trading and Omicron-related uncertainties, the U.S. dollar’s strength reflects its safe-haven appeal and expectations of tighter U.S. monetary policy. Investors will closely watch upcoming Fed decisions and global health developments for further market direction.
