Mood improves modestly, dollar continues to outperform

The intensifying flight to safety during the American trading hours caused global stocks to suffer heavy losses and fueled yet another rally in the US Dollar Index, which climbed to its highest level in more than two years near 102.50. The US economic docket will not be featuring any high-impact data releases on Wednesday. European Central Bank (ECB) President Christine Lagarde will be delivering a speech later in the day and investors will remain focused on risk perception.

The S&P 500 Index lost nearly 3% on Tuesday but S&P Futures were last seen rising 0.6% on the day. The benchmark 10-year US Treasury bond yield is also up nearly 2%, pointing to an improving market mood early Wednesday. It’s too early to say whether or not risk flows will gather enough momentum to dominate the markets mid-week. Russia’s Foreign Minister Sergei Lavrov said on Tuesday that they rejected Ukraine’s proposal to hold peace talks in Ukraine. Lavrov further warned that they must not underestimate the risks of a nuclear war. Meanwhile, China has expanded mass coronavirus testing to almost the entirety of Beijing after 33 new locally transmitted cases were detected on April 25.

EUR/USD lost nearly 100 pips on Tuesday and continues to edge lower early Wednesday. The pair was last seen trading at its lowest level in five years at around 1.0620. The data from Germany showed earlier in the session that the Gfk Consumer Confidence for May slumped to -26.5 from -15.7 in April, missing the market expectation of -16 by a wide margin.

GBP/USD fell below 1.2600 for the first time since July 2020 and has gone into a consolidation phase near 1.2580. For the month of April, the pair is down more than 4%.

USD/JPY closed the second straight day in negative territory on Tuesday but managed to stage a rebound during the Asian trading hours on Wednesday. As of writing, the pair was clinging to strong daily gains near 128.00.

After dropping to its lowest level in two months at 0.7118 on Tuesday, AUD/USD turned north in the Asian session on Wednesday. The data from Australia showed that the annual Consumer Price Index (CPI) in the first quarter jumped to 5.1% in the first quarter from 3.5%, surpassing analysts’ estimate of 4.6% by a wide margin.

Gold managed to limit its losses on Tuesday and closed at $1,906. Amid the positive shift in risk sentiment early Wednesday, XAU/USD started to edge lower and was last seen posting small daily losses at around $1,900.

Bitcoin fell nearly 6% following Monday’s rebound and failed to hold above $40,000. BTC/USD is edging higher but trades below $39,000 in the early European session. Ethereum fell to its lowest level in more than a month at $2,766 on Tuesday. ETH/USD is already up 2% on Wednesday but continues to trade below $3,000.

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