Dollar selling stalls as short-dated Treasury yields jump

After the record close on Wall Street indices overnight, a sense of caution has returned across the financial markets this Tuesday. Investors once again assess the risks of the Omicron covid variant on the economic growth, despite the robust holiday season sales in the US.

The Australian states of Victoria and Queensland posted record covid cases while the US The Centers for Disease Control and Prevention (CDC) cut the recommended isolation time for Americans with COVID-19 to five days from 10 days amidst the rapid spread of the new variant.

The latest regulatory tightening in China also tempered the investors’ sentiment, as the Asian equities traded mixed while the futures tied to the S&P 500 index retreated from record highs.

The US dollar index paused its sell-off, finding support from a spike in the shorter-maturity Treasury yields. The two-year yield jumped to 0.758%, the highest level since early March 2020, on rising bets of a March Fed rate hike, fuelled by the recovery optimism. Meanwhile, longer-dated rates on Treasuries held steady to lower.

EUR/USD is off the lows, keeping its range below 1.1350 following the last week’s rebound.

GBP/USD is consolidating near five-week highs below 1.3450 amid easing Omicron and Brexit fears. The UK government provided assurance of no fresh restrictions during the holiday season. Further, new post-Brexit fishing rules and the announcement of £75million funding for British ports and processing facilities underpin the pound.

USD/JPY is tracking the advance in the front-end yields, sitting at the highest levels in five weeks just shy of the 115.00.

Gold bulls are re-attempting the key $1,814 hurdle amid buying resurgence, acceptance above the latter is critical for further upside.

The barrel of West Texas Intermediate (WTI) is battling powerful 50-DMA resistance just below $76 after the previous week’s recovery gathered steam on Monday.

Bitcoin is snapping the recent bullish momentum, falling back below the $50,000 level.

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