In the face of the new Omicron covid variant and Fed Chair Jerome Powell’s hawkish view, the US dollar is poised for new upside risks in the coming weeks.

Key quotes

"Recent developments have introduced new upside risks to our broad Dollar forecasts.”

“First, following public comments from Fed officials, our economists now expect the FOMC to accelerate the pace of QE tapering and to wrap up the process in mid-March. They also now anticipate three 25bp rate hikes next year instead of two (in June, September, and December, vs July and November previously), and a two-per-year pace thereafter.”

“Second, the new covid variant already roiling South Africa may introduce new downside risks to global growth, and therefore upside risks to the safe haven Dollar.”

“We have not revised our broad USD forecast today but will be considering an upgrade over the coming week."