Dollar kicks off with gains amid covid fears, Powell, inflation, eyed later this week

The US dollar has been recovering on Monday after retreating on Friday as Treasury yields stabilize. Concerns about the Delta covid variant are somewhat weighing on sentiment. Critical US consumer data and Fed Powell’s testimony later in the week are already eyed.

US 10-year Treasury yields have stabilized around 1.35% on Monday after a turbulent week that saw the correlation between returns on US debt and the dollar diminish. Yields remain on lower ground, while the greenback is edging higher after retreating on Friday.

One of the potential reasons to rush into the safety of US debt is the rapid spread of the Delta COVID-19 variant across the world. Cases in the US are up 60% in the past fortnight, albeit from a low base and concentrated in specific areas.

Investors are eyeing several top-tier consumer-related figures from America, starting with the Consumer Price Index report on Tuesday. Headline inflation is set to edge lower in June but to remain on high ground.

Federal Reserve Chair Jerome Powell is due to testify later in the week, shedding light on the bank’s policy after the meeting minutes from the previous event showed no rush to taper bond buys, a somewhat more nuanced message in comparison to the hawkishness from the June meeting.

European Central Bank President Christine Lagarde said the upcoming July 22 meeting will consist of new forward guidance and dismissed any chance of an early exit from the ECB’s bond-buying scheme.

The Delta variant is beginning to spread quickly beyond Spain and Portugal, where it hit first. Covid infections shot up 800% in the Netherlands and French President Emmanuel Macron is set to address the nation. EUR/USD is trading closer to 1.1850, retreating from the highs.

GBP/USD is also retreating from the highs as the British government is set to leave some of its coronavirus-related restrictions after the July 19 reopening. Daily cases remain above 30,000 a day and hospitalizations are rising.

AUD/USD is on the back foot below 0.75 as Sydney’s lockdown will likely drag on as infections increased by 45%. Moreover, concerns about a slowdown in China are also weighing on sentiment. Beijing announced a cut to its Reserve Ratio Requirements (RRR) allowing banks to holder fewer reserves and stimulate the economy.

Cryptocurrencies have been consolidating around familiar levels, with Bitcoin hovering around $34,000 and Ethereum at around $2,100.

Gold has stabilized around $1,800 and oil is hovering around $74, on relatively high ground.

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