The dollar ticked higher on Friday amid a broadly calmer tone in markets as fears over Omicron's impact eased, but currency moves were muted ahead of a key U.S. payrolls report that could clear the path to earlier Federal Reserve interest rate hikes. Scientists in South Africa, where the Omicron variant was first discovered last month, said existing vaccines should still protect against severe disease and death. Elsewhere, Fed officials speaking on Thursday joined Chair Jerome Powell in striking hawkish stances, with San Francisco Fed President Mary Daly saying it may be time to "start crafting a plan" to raise rates to combat inflation, and Richmond Fed President Thomas Barkin throwing his support for "normalizing policy."
Interest rate differentials will dominate sentiment in forex markets over the next three months, a Reuters poll of FX analysts found, placing the U.S. dollar in a unique position to extend its outperformance against its peers. The dollar index, up nearly 7% for the year and on its best run since 2015, received further impetus from Federal Reserve Chair Jerome Powell on Wednesday, who gave markets fodder to speculate the central bank would raise rates earlier than expected. With that policy impetus in its sails, the dollar is likely to find new converts in coming weeks from among those analysts who still expect it to weaken in the short- to medium-term.
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