Dollar drops with yields in Fed’s aftermath, Evergrande risks loom, BOE to hint at taper?

The risk tone appears calmer in early European trading, as investors assess the Fed’s tapering announcement and China Evergrande’s Group’s looming debt crisis.

A sense of caution prevails, as the risk-on market mood eases slightly on concerns over Evergrande’s impending USD83 million debt repayment this Thursday, despite the People’s Bank of China (PBOC) pumping in USD17 billion into the system. Markets still remain hopeful, as the indebted property developer still has a 30-day grace period before it is registered as a default.

Investors appear to have shrugged off the progress on the US $3.5 trillion spending plan after the meetings between President Joe Biden and the Democratic lawmakers.

The Asian equities are a mixed bag, with full markets returning to the Evergrande crisis. China and Hong Kong stocks pare early gains while the S&P 500 futures also trim the advance. Meanwhile, the US dollar reverses hawkish Fed-led gains, falling in tandem with the Treasury yields amid the cautious mood.

Gold price is attempting a minor recovery of around $1765 in the Fed’s aftermath. WTI is trading modestly flat at mid-$72s, preserving Wednesday’s rebound.

Within the G10 currency basket, the Antipodeans remain the laggards, with AUD/USD keeping its range below 0.7250. The kiwi recovers from lower levels to trade around 0.7000, as the RBNZ said it would proceed with its proposal to tighten mortgage lending in a bid to control an inflated housing market.

USD/JPY’s upside remains capped below 110.00 amid a pullback in the yields. EUR/USD is bouncing back above 1.1700 amid recent encouraging comments on inflation by the ECB policymakers, as attention shifts towards the Euro area and the US Preliminary Manufacturing and Services PMIs.

GBP/USD is staging a solid comeback towards 1.3650, as traders remain hopeful that the BOE may hint at tapering at its September monetary policy meeting. Rising UK inflation expectations could prompt the British central bank to begin the policy normalization, with the odds increasing after the Fed’s hawkish surprise.

Cryptocurrencies are looking to stabilize, with Bitcoin back around $44,000.

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