Dollar continues to gather strength on rising yields

The dollar continues to outperform its rivals after starting the new week on a firm footing. On the back of rising US Treasury bond yields, the US Dollar Index pushes higher toward 99.00 early Tuesday. The economic docket will not feature any high-tier macroeconomic data releases. Market participants will keep a close eye on central bank speak and developments surrounding the Russia-Ukraine conflict.

In a statement published on Monday, Kremin noted there was no significant progress in peace talks with Ukraine and warned that an EU embargo on Russian oil “would hit everyone.” Similarly, Ukrainian President Volodymyr Zelenskyy said it was not possible to make a decision on what should be done with occupied territories in Ukraine. Heading into the European session, US stock index futures are posting small daily losses.

Meanwhile, the benchmark 10-year US T-bond yield hit its highest level since May 2019 above 2.3% on hawkish remarks from Fed officials. FOMC Chairman Jerome Powell reiterated that the policy could become “restrictive” if needed to restore price stability. Atlanta Fed President Raphael Bostic noted that he expects six rate hikes in 2022 and Richmond Fed President Thomas Barkin argued that it might be appropriate to hike the policy rate by 50 basis points to tame inflation.

EUR/USD is having a hard time gaining traction after dipping below 1.1000 earlier in the day. European Central Bank President Lagarde said on Monday that their policy will not be in sync with the Fed policy. Lagarde is scheduled to speak again at 1315 GMT.

GBP/USD continues to edge lower toward 1.3100 pressured by the broad-based dollar strength. Later in the day, Bank of England (BOE) Deputy Governor Jon Cunliffe, who voted to keep the policy rate unchanged last week, will be delivering a speech at 1515 GMT.

The risk-averse market environment is allowing gold to find demand but rising US Treasury bond yields cap the yellow metal’s upside. Hence, XAU/USD fluctuates in a relatively tight range below $1,950.

Fueled by surging US T-bond yields, USD/JPY extended its rally and was last seen trading at its highest level since January 2016 near the mid-120s. Japan’s Chief Cabinet Secretary Hirokazu Matsuno said earlier in the day that they were not thinking of an economic stimulus package at the moment.

Bitcoin declined toward $40,000 on Monday but managed to gather bullish momentum. After advancing to its strongest in more than two weeks at $43,390 earlier in the day, BTC/USD erased a portion of its gains and was last seen rising 3% on the day at $42,250. Ethereum climbed above $3,000 for the first time since early March on Tuesday before going into a consolidation phase near that level.

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