Yen and Swiss Franc rally amid risks to global outlook after hawkish Powell

Illustrative photo of US Dollar, Swiss Franc, British Pound and Euro banknotes, taken in Warsaw on January 26, 2011. REUTERS / Kacper Pempel / File Photo

NEW YORK, Nov. 30 (Reuters) – The safe haven yen and Swiss franc appreciated on Tuesday with plummeting risk appetite as investors worried about a suddenly hawkish Federal Reserve that could aggressive rate hikes and derail a nascent economic recovery.

Concerns over the new variant of the Omicron coronavirus have also maintained an offer in these safe haven currencies.

The dollar, on the other hand, fell on Tuesday after rising when Fed Chairman Jerome Powell said inflation risk had increased and suggested removing the term “transient” to describe the price spike. He also pushed to accelerate the reduction of the Fed’s asset purchases. Read more

His comments suggest there is an urgent need for swift monetary policy action that financial markets may not be prepared for, analysts said.

“Overall, the risks to the near-term outlook continue to grow. Investors have always viewed the Fed as a safety net, but the Fed seems to be panicking here,” said Edward Moya, senior market analyst at OANDA in New York.

“The Fed got it wrong about inflation. And now it looks like it’s going to rush in and make rate hikes quickly. And if inflationary pressure persists, you could see an accelerating rate hike cycle. which could threaten financial conditions. “

At the end of the session, the dollar fell 0.4% against the yen to 113.065 yen.

Against the Swiss franc, the dollar fell 0.4% to 0.9185 francs.

The dollar index fell 0.3% to 95.90. It rallied earlier, while US stocks fell, after Powell’s hawkish remarks.

“Traders are in ‘sell first, ask questions later’,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

Earlier, the yen and Swiss franc rose against the dollar, after the CEO of Moderna said coronavirus vaccines would likely be less effective against the Omicron variant than they were against other variants .

Adding to fears, drugmaker Regeneron Pharmaceuticals Inc (REGN.O) said on Tuesday that its COVID-19 antibody treatment may be less effective against Omicron. Read more

The warnings reinforced the idea that the global economy may take longer to return to pre-pandemic levels than many had anticipated.

Against the US dollar, the euro rose 0.4% to $ 1.1335, posting its strongest three-day streak since December 2020.

Prior to Omicron’s arrival, the main driver of currency movements was how traders perceived the different speeds at which global central banks would end the pandemic-era stimulus measures and raise interest rates as ‘they sought to fight rising inflation without stifling growth.

Cryptocurrencies have also had a volatile trading session. Ethereum was last up 4.8% at $ 4,668. Bitcoin was down 0.3% to $ 57,645.

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Currency bid price at 4:11 p.m. (2111 GMT)

Reporting by Caroline Valetkevitch and Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London; Editing by Bernadette Baum and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.