What's Up With The US Dollar?

There was lots of confusion on Friday as the USD pushed lower despite the overall risk off sentiment in the marketplace.

So why did USD behave this way? The answer is simple.

Yes – a risk off environment usually sees Dollar strength and if the Omicron situation really turns very ugly, then safe haven support is to be expected. 

However, on Friday, it was simply stretched positioning on the JPY side and a lot of hawkishness for the Fed (that needed to reprice).

In these types of environments, it’s not that the USD is not seen as a safe haven. Rather, the JPY just has a lot more downside to unwind. USD was also hit as markets priced out one of the three Fed hikes priced in before the new Covid variant came on the scene.

So, what’s next for USD? Well, there are no easy answers I’m afraid, as it’s going to be a headline driven week for the most part, with focus for the USD centred on the virus, Fed speak, inflation expectations and OPEC.

As always, we have more on this and how we look to potentially take advantage of it in our week ahead video.