Dollar rebounds as China Evergrande jitters damp mood, Powell eyed

The risk-on sentiment from the US last session cooled off slightly in the Asian trading this Friday, as the ongoing uncertainty around the fate of indebted China Evergrande put investors in limbo.

The Asian markets traded mixed while the S&P 500 futures fluctuated between gains and losses, virtually unchanged on the day. The US dollar looked to stabilizing, attempting a minor bounce after Thursday’s blow. The cautious market mood combined with higher Treasury yields rescued the dollar bulls.

No latest developments on the China Evergrande story after Thursday’s local coupon repayment spooked markets, as they await fresh updates on the impending USD83 million offshore coupon payment and next week’s $47.5 million payment, both of which have 30-days grace period before they could be considered as default.

Investors also digest the hawkish shifts in the Fed’s and BOE’s monetary policy stance amid the optimism on the US $3.5 trillion spending bill.

Gold price is looking to extend the recovery from six-week lows while recapturing $1750. WTI is consolidating near monthly highs around $73.50, shrugging off news that China’s NDRC is looking to solve issues of rising raw material prices while tapping onto the strategic oil reserves.

Across the G10 fx space, the Antipodeans have stalled their recovery mode, as AUD/USD eases back below 0.7300 after the IMF cut Australia’s 2021 GDP growth forecast amid property market concerns. Meanwhile, USD/JPY holds the higher ground around 110.50, benefiting from the US Treasury yields, with the benchmark 10-year rates hovering near two-month tops.

EUR/USD is holding onto its upside above 1.1700, despite the firmer yields and downbeat Euro area Preliminary Markit PMI reports. ECB President Christine Lagarde said that many causes of higher prices are temporary. German IFO survey and Fed Chair Jerome Powell’s speech will be in focus. Sunday’s German election could keep the EUR traders wary.

GBP/USD is trading above 1.3700, preserving most of the hawkish BOE-induced gains. The BOE stood pat on its monetary policy settings but hinted at a potential rate hike, sooner than expected.

Cryptocurrencies are back in the red, with Bitcoin languishing below $45s,000.

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