The dollar rose on Friday (December 17) as traders retreated from riskier currencies amid talk of interest rate hikes by central bankers and concerns about the spread of Omicron cases.
The dollar index against major currencies rose 0.7%, recouping all of the value it had lost on Thursday following a series of central bank policy statements.
The euro and British pound fell 0.8% and 0.6%, respectively, after having booked gains the two previous days. The euro stood at $1.1239 and the pound at $1.3236 at 2100 GMT.
Commodity-linked currencies, including the Australian and Canadian dollars, also lost value as crude oil prices fell 2% on worries that Omicron variant will dampen demand.
The Aussie fell 0.8% to $0.7124.
The Canadian dollar traded 1% lower at 1.2895, or 77.54 U.S. cents, in its biggest decline since November 26.
The dollar was flat against the Japanese yen.
The risk of reinfection with the Omicron coronavirus variant is more than five times higher than the Delta variant and has shown no sign of being milder, a new study from England showed. The findings were released as European countries weigh further travel and social restrictions.
In the United States, Federal Reserve Governor Chris Waller said an interest rate increase will likely be warranted "shortly after" the Fed ends its bond purchases in March.
Earlier, New York Fed president John Williams told CNBC that the Fed will gain "optionality" to raise interest rates in 2022 by ending bond purchases by March.
Traders are comparing changing interest rates across currencies as central banks go at different speeds to adjust monetary policies in the face increasing signs of persistently high inflation and the Omicron threat.
The spread between yields on two-year government securities of the United States and Germany widened through the day to its biggest gap in a week and reflected the euro's weakness.
Some analysts have cautioned against reading too much into changes in exchange rates at this stage.
With the central bank meetings out of the way, "we think there will be little informational value in price action in coming days," strategists at TD Securities said in a note to clients on Thursday.
"The USD can consolidate into year-end as FX markets work off some residual positioning/value excesses," they added.
The dollar index, at 96.6590, was up about 8% since May.
Among cryptocurrencies, bitcoin fell 3% to $46,335.