New Covid-19 variant: Currencies stabilise as worst Omicron fears recede

The dollar hovered on Tuesday above the one-week low against major peers it hit last week, as fears eased that the new Omicron coronavirus variant would derail the US recovery and delay Federal Reserve interest rate hikes.

The safe-haven yen stabilised some half a percent off its strongest level since November 11, reached on Monday. The euro meandered about a third of a percent below Monday's one-week high.

The risk-sensitive Australian dollar drifted about 0.4 per cent from a three-month low.

Traders took comfort from remarks by President Joe Biden that the United States would not reinstate lockdowns, as well as a South African doctor's comments that the new strain causes milder symptoms.

In testimony prepared for Congress later Tuesday, Fed Chair Jerome Powell says Omicron could cause inflation pressures to last longer.

That would potentially speed the need for rate hikes, whereas traders initially reacted to Omicron's discovery by pushing back bets for Fed tightening because of the risk to growth.

Money markets currently see good odds of a first rate rise in July, but one is not fully priced until September.

At the same time, the World Health Organization warned of a "very high" risk of infection surges from Omicron, and countries around the world have reacted quickly to tighten border controls.

The single currency had slumped to a nearly 17-month trough of $1.1186 as European Central Bank policy makers stuck to their dovish stance in the face of heated inflation. The latest reading on euro area consumer prices is due later Tuesday.