EUR/USD weighed by covid Omicron variant risks

• EUR/USD bears dominating as the US dollar catches a risk-off bid. 
• EU worried to be the epicentre of the new covid variant spread. 

EUR/USD is weighed down by the prospects of the EU becoming the epicentre of the new covid variant, Omicron. At the time of writing, EUR/USD is trading at 1.1277 and between a low of 1.1273 and 1.1286, virtually flat on the day in comparison to the start of the week's range. 

Following its discovery at the end of November, there have now been at least 6,430 confirmed cases of the variant detected in 70 countries, according to the European Centre for Disease Prevention and Control (ECDC). The variant is said to be becoming dominant in Europe. European countries were among the first to report cases but the variant has yet to be detected everywhere on the continent.

Meanwhile, the new variant fears weighed on risk sentiment on Monday and the FTSE 100 closed down 0.73% at 654. S&P 500 fell a similar margin, ending down 0.9% to 4,668.97. The Nasdaq Composite dropped 1.4% to 15,413.28 and the Dow Jones Industrial Average was 0.9% lower at 35,650.95. The 10-year US Treasury yield also fell 8 basis points to 1.41% while the two-year Treasury yields fell 3 basis points to 0.63%. EUR/USD trimmed losses to about 25 pips, at 1.1290.

ECB in focus

Elsewhere, central banks will be taking up the spotlight this week. ''So far the European Central Bank (ECB) has considered inflation to be transitory but it is increasingly looking persistent,'' analysts at ANZ Bank noted.

The analysts continued, ''recently, the US Federal Reserve changed its tune on inflation and it is highly possible that a change of stance may be seen from the ECB when they meet later this week. Inflation is strong across the euro area with consumer prices currently at a record 4.9%, which is well above the 2% target.''

''Unlike the US the economic recovery in Europe is much more fragile and the region is currently battling the current wave of Omicron cases. At this stage the ECB expects inflation to ease to 1.5% in 2023 and will soon release its inflation forecast for 2024,'' the analysts explained.