Markets turn cautious as focus shifts to FOMC Minutes

The greenback gathered strength against its rivals during the first half of the day on Tuesday but lost its momentum in the late American session. The risk-averse market environment caused US Treasury bond yields to retreat and the US Dollar Index pulled away from the two-week high it set earlier in the day. Later in the day, the US private sector employment report published by the ADP and the FOMC’s minutes of the December policy meeting will be watched closely by market participants. The IHS Markit will release the final revisions to Services and Composite PMI data for the euro area, Germany and the US as well.

Reflecting the souring marked mood, the Shanghai Composite Index is losing 1% and US stocks futures are down between 0.3% and 0.55%. Ongoing concerns surrounding the Chinese real estate giant Evergrande, inflation fears and the rapid spread of the coronavirus Omicron variant force risk rallies to remain limited.

Meanwhile, the data from the US showed on Tuesday that the business activity in the manufacturing sector expanded at a softer pace than expected in December. On a positive note, the Prices Paid component of the ISM Manufacturing PMI dropped sharply to 68.2 from 82.4 in November.

EUR/USD closed the second straight day in the negative territory on Tuesday but it seems to have settled around 1.1300 in the early European session.

GBP/USD dropped below 1.3500 but managed to regather its bullish momentum. British Prime Minister Boris Johnson said that they have a chance to “ride out this Omicron wave” without imposing lockdowns and helped the pound find demand.

USD/JPY extended its rally to a fresh five-year high above 116.00 on Tuesday. With the benchmark 10-year US Treasury bond yield edging lower early Wednesday, the pair is trading in the negative territory near 116.00.

Gold’s inverse correlation with US Treasury bond yields remains intact mid-week. XAU/USD tested $1,800 on Tuesday but ended up closing the day in the positive territory above $1,810.

Bitcoin continues to trade near the lower limit of its one-month-old trading range at $46,000. Ethereum closed little changed on Tuesday and started to edge higher toward $4,000 early Wednesday.

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