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November 24, 2021
Federal Reserve Chairman Jerome Powell said that the high inflation will recede in the next few years as demand and supply become more balanced. It is also supported by the tapering program that the Fed has run.
Even so, Powell also warned that the COVID Omicron variant could complicate the prospects going forward. It is known that this variant has been spreading in some countries worldwide.
It is difficult to predict exactly what the rate of inflation will look like and the effects of global supply bottlenecks. However, PowelI believes that the factors driving inflation upwards will persist into 2022.
That opinion was said by Powell in a testimony to be delivered before the Senate Banking Committee. He was then alluded to a labor market that is particularly vulnerable to the deployment of this Omicron variant.
In addition, the risk of hampered economic activity also cannot be ruled out. It is because that will damage the recovery that has been running quite solidly since the beginning of the year.
In his statement, Powell did not give any clues about the tapering program that began to run this month. He implied the current U.S. labor market is "ground to cover" before it reaches the maximum employment.
That is one of the conditions before the Fed raises rates. Furthermore, the USD calms down and it is ready for the strengthening ahead. This possibility is quite reasonable to happen in the market.
Until Tuesday's Asian trading session, the U.S. dollar's movements tended to calm after high volatility at the end of last week. The dollar does not move much especially versus the commodity currencies.
This can be seen from the AUD /USD pair which is currently stuck in a consolidation phase. Meanwhile, the USD Index (DXY) has traded in a narrow range in the past two days, and currently hovers around 96.12.
The U.S. dollar could potentially resume a bullish trend in reference to CFTC data showing the DOLLAR's Net Long position increased to a high record since the mid-October period.
It means that the majority of market participants still stop bullish against the dollar. Elsewhere, The safe haven currency strengthened again in an early trading of the European session yesterday (November 30).
That was responding to moderna CEO's comments about the COVID-19 variant Omicron. USD/JPY slipped around 0.4 percent to a low position of 112.95. The USD/CHF weakened for the third straight day to a range of 0.9200. I
In contrast, commodity currencies fell in congregation. In an interview with The Financial Times, the Moderna CEO, Stéphane Bancel, revealed that the COVID-19 vaccine is unlikely to be effective against the Omicron variant.
He said that he doesn’t think that there's a world where is on the same level... With what we have against Delta. Moderna is now reworking its COVID-19 vaccine to create a suitable booster for this variant.
Meanwhile, biONTech as it’s rival announced that it had begun work on making a vaccine specifically for Omicron. The announcement comes just a day after BiONTech said it could take two weeks.
That is especially to investigate whether the previous COVID-19 vaccine needed to be re-upgraded to ward off Omicron. The USD/JPY exchange rate had strengthened earlier in the trading day.
Why the USD/JPY is strengthening
The strengthening happened due to the news that President Joe Biden promised not to implement another lockdown in the US. However, recent announcements from vaccine makers have again raised concerns in the market.
The emergence of the new COVID-19 variant also forced the market participants to reevaluate the projected rate hike.u
The Omicron variant could result in a high inflation rate to last longer. Previously, Powell also stated that the labor market is very vulnerable to Omicron.
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