Markets quiet down as focus remains on geopolitics

The positive impact of easing fears over a military conflict between Russia and Ukraine on the risk sentiment faded away in the second half of the day on Tuesday as the US introduced sanctions against Russia. Wall Street’s main indexes closed the day deep in the negative territory and the 10-year US Treasury bond yield declined for the fourth straight day. Markets stay relatively quiet early Wednesday as investors stay focused on geopolitics. Wednesday’s economic calendar will not be offering any high-impact data releases.

Early Wednesday, the market mood stays moderately upbeat with US stocks futures indexes rising between 0.15% and 0.25%. The US Dollar Index, which closed little changed near 96.00 for the second straight day on Tuesday, continues to move sideways. Atlanta Fed President Raphael Bostic said late Tuesday that they were not sure how sanctions against Russia would impact the economic activity. “The Fed needs to move off of emergency policy stance and can do so without jeopardizing employment,” Bostic added but these comments failed to trigger a noticeable market reaction.

NZD/USD is trading at its highest level in a month above 0.6770 boosted by the Reserve Bank of New Zealand’s (RBNZ) hawkish policy outlook. As expected, the RBNZ hiked its policy rate, the official cash rate (OCR), by 25 basis points to 1% and RBNZ Governor Adrian Orr said that they cannot rule out 50 basis points rate hikes in the future. “The amount of tightening through bond sales is very small, it’s all about the OCR,” Orr added.

EUR/USD is trading in a relatively tight range above 1.1300 early Wednesday despite European Central Bank Governing Council member Robert Holzmann’s hawkish comments. “The ECB could take a first interest rate step in the summer and a second at end-2022,” Holzmann said in an interview with NNZ.

GBP/USD dropped to 1.3540 on Tuesday but managed to erase a large portion of its daily losses to close at 1.3580. The pair is fluctuating in a tight range below 1.3600 in the early European morning. Later in the session, Bank of England (BOE) Governor Andrew Bailey will present the Monetary Policy Report to the UK parliament.

Gold advanced to a fresh multi-month high above $1,910 on Tuesday but lost its traction with safe-haven flows cooling off. XAU/USD seems to have gone into a consolidation phase near $1,900 mid-week.

Bitcoin staged a rebound after falling to multi-week lows on Tuesday but continues to trade below $40,000. Ethereum continues to edge higher after closing in the positive territory on Tuesday and was last seen rising more than 1% near $2,700.

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