USD/JPY: The dollar strengthened against the Japanese yen. Investors held their breath ahead of a monetary policy update from the Federal Reserve. The Fed is expected to announce an accelerated bond taper schedule and signal a move to raise interest rates next year to tackle rising inflation at the end of its Wednesday meeting. The latest weakness could also be linked to the Omicron concerns. Although a leap in Japan’s train reservations for holidays hints at receding virus fears, concerns of a flood in the U.K.’s Omicron-linked hospitalizations and recently rising covid variant cases in the Asia-Pacific portray persisting COVID-19 woes.
USD/CAD: The Canadian dollar fell to its lowest level in nearly three months against the U.S. dollar as worries about the Omicron variant dampened investor sentiment and in anticipation of a government budget policy update that could show limited new spending. The price of oil, one of Canada’s main exports, fell as the International Energy Agency said the new variant could hinder a recovery in global demand. On the other hand, the U.S. dollar struggled to preserve its modest intraday gains and was seen consolidating near a one-week-high. This was considered as another factor that kept a lid on any meaningful upside for the USD/CAD pair. The downside, however, remains cushioned amid uncertainty over the economic risks stemming from the spread of the Omicron variant and hawkish Fed expectations.
XAU/USD: Gold fell the day before after the U.S. Producer Price Index (PPI) for November renewed its record high rising to 9.6% from the previous reading of 8.6%. Omicron worries and a rebound in U.S. Treasury yields, as well as a strengthening U.S. Dollar Index (DXY) were additional catalysts for bearish sentiment. Nevertheless, Wall Street benchmarks closed lower, but the S&P 500 futures printed a weak gain by the time of publication. The market caution before the Fed meeting and hopes for faster stimulus from the U.S., as well as relief from the debt ceiling issue, seem to underlie the latest correctional pullback in gold prices.