USD/JPY: Bulls step on the gas and rech into fresh highs

• USD/JPY is trading at the highs of the day as the US dollar catches a bid.
• Covid fears are abating and inflationary pressures are now the focus. 
• US CPI will be a key data event this week ahead of the Fed later this month. 

The US dollar and yields are firmer as the new York session progresses into the last third of the day. The DXY, an index that measures the performance of the greenback vs. a select few major currency rivals is now 0.19% higher on the day.

The US 10-year yield is also on the bid, rallying in the last two hours of the session and higher by over 6.9% to 1.4365 at the time of writing. US stocks are also flying higher with the S&P 500 up 1.51% on the day so far. The Dow Jones Industrial Average climbed 1.9% to 35,231.31 and the Nasdaq Composite 0.6% higher in trading midday on Monday. Utilities, real estate and financials led gainers, with all sectors in the green.

As a consequence, USD/JPY is 0.68% higher printing 113.52 at the time of writing, a touch below the highs of the day of 113.55 after moving up from a low of 112.82 earlier in the day. Early indications show the severity of omicron, the newest COVID-19 strain that contributed to a recent selloff, is likely to be milder than previously anticipated.  The safe-haven currencies are pressured on the back of the improved risk sentiment and the greenback is catching the carry trade flows as investors search for yield. 

Omicron has now been detected in at least 24 countries around the world, according to the World Health Organization (WHO). While Omicron has spread to about one-third of US states as of Sunday, Dr. Anthony Fauci, the top US infectious disease official, told CNN that "thus far it does not look like there's a great degree of severity to it," though he cautioned that it's too early to be certain.

US CPI will be critical this week

Eyes will now turn to consumer prices in the United States, which are projected to show the greatest annual increase in decades. The divergence between the Federal Reserve and other central banks is fuelling the bid in the greenback. risks of persistent inflation have forced the Fed to rethink its outlook and remove the transitory language from its communications to the outside world. The threat of longer-lasting inflation is putting additional pressure on the Federal Reserve to tighten policy more quickly.

On December 10, US Consumer Price Index will be released and analysts at TD Securities explained that they expect inflation to slow significantly as fiscal stimulus fades and supply constraints ease. 'We don't expect the data to be validating in the near term,'' they said. ''The CPI likely surged in Nov, with a drop in oil coming too late to avert another large gain in gasoline and core prices boosted by rapidly rising used vehicle prices and post-Delta strengthening in airfares and lodging.''