Dollar extends rebound as US yields advance higher

The greenback managed to post modest gains against its major rivals and looks to preserve its bullish momentum early Tuesday with the US Dollar Index rising above 95.30. The benchmark 10-year US Treasury bond yield is at its highest level in two years near 1.85%, up more than 1% on a daily basis. ZEW Survey from Germany will be featured in the European economic docket ahead of NY Empire State Manufacturing Index data from the US on Tuesday.

Meanwhile, S&P Futures and Nasdaq Futures were down 0.4% and 0.9%, respectively, at the time of press, suggesting that safe-haven flows could dominate the markets in the second half of the day. Heightened geopolitical tensions due to the Russia-Ukraine conflict, the rising number of coronavirus cases in China seem to be weighing on risk sentiment.

EUR/USD is testing 1.1400 after closing the first day of the week slightly lower. The pair remains at the mercy of the dollar’s market valuation.

GBP/USD extended its downward correction early Tuesday and continues to edge lower toward 1.3600. Political jitters in the UK and the sour market mood could cause the pair to stay on the back foot. The data published by the ONS showed earlier in the session that the Unemployment Rate edged lower to 4.1% from 4.2% as expected. Average Earnings Including Bonus rose by 4.2% in November, compared to 4.9% in October.

USD/JPY rose sharply toward 115.00 on the back of surging US Treasury bond yields after closing in the positive territory on Monday. The Bank of Japan (BOJ) left its monetary policy settings unchanged as expected. BOJ Governor Haruhiko Kuroda said that they are not considering hiking the key rate or tweaking the current monetary easing. Additionally, the BOJ reiterated in its quarterly report that the economic pick-up is becoming clearer.

Gold fluctuated in a tight range and closed the day virtually unchanged near $1,820 on Monday. Rising US Treasury bond yields seem to have started to weigh on the yellow metal in the early Europen session.

USD/CAD edged lower despite renewed dollar strength on Monday and tests 1.2500 early Tuesday. Rising crude oil prices help the commodity-related loonie find demand. The Bank of Canada’s (BOC) Business Outlook Survey (BOS) revealed on Monday that the business sentiment continued to improve at an impressive pace in the fourth quarter with the BOS Indicator rising to a record high of 5.99 from 4.73 in the third quarter.

Bitcoin has failed to gather recovery momentum and returned to the $42,000 area on Monday, where it seems to have gone into a consolidation phase early Tuesday. Ethereum lost more than 4% on Monday and came in within a touching distance of $3,000, giving back a large portion of last week’s gains.

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