Safe-haven flows dominate markets mid-week

Wall Street’s main indexes suffered heavy losses and the 10-year US Treasury bond yield climbed to its highest level in more than two years near 1.9% on Tuesday, allowing the greenback to continue to outperform its major rivals. Safe-haven flows continue to dominate the financial markets early Wednesday amid escalating Russia-Ukraine tensions, inflation fears and the rising number of coronavirus cases in Asia. Later in the day, Building Permits and Housing Starts will be featured in the US economic docket and Statistics Canada will release December Consumer Price Index (CPI) data.

The US Dollar Index, which tracks the dollar’s performance against a basket of six major currencies, seems to have gone into a consolidation phase above 95.50 after rising 0.5% on Tuesday.

EUR/USD fell sharply on Tuesday and already erased all the gains it recorded last week. The pair continues to stay afloat above 1.1300 so far but the risk-averse market environment could make it difficult for the shared currency to find demand. The data published by Destatis showed on Wednesday that the annual HICP was up 5.7% in December, matching the flash estimate and the market expectation.

GBP/USD is trading near 1.3600 following Tuesday’s steep decline as inflation figures from the UK seem to be helping the British pound stay resilient against its rivals. The UK’s Office for National Statistics reported that the Consumer Price Index rose to 5.4% on a yearly basis in December from 5.1% in November. This reading beat the market expectation of 5.2%.

USD/JPY rose above 115.00 on rising US T-bond yields but reversed its direction in the second half of the day with the JPY attracting investors as a safe haven. The Bank of Japan noted in its quarterly outlook report that the pass-through of rising raw material costs to consumers had not spread to a broad range of items.

Gold closed in the negative territory on Tuesday but the key support area that is located near $1,800 remains intact. Additional losses could be witnessed if another leg higher in yields causes the yellow metal to drop below that level.

Despite the broad-based dollar strength, USD/CAD continues to fluctuate around 1.2500 as surging crude oil prices support the loonie. Annual CPI in Canada is expected to edge higher to 4.8% in December from 4.7% in November. A stronger-than-expected inflation reading could provide an additional boost to the CAD in the second half of the day and vice versa.

AUD/USD fell below 0.7200 and seems to be having a tough time staging a convincing rebound. Australian Bureau of Statistics will release January Consumer Expectations and Unemployment Rate data in the early trading hours of the Asian session on Thursday.

Bitcoin continues to edge lower toward the critical $40,000 mark after closing flat on Tuesday. Ethereum is falling for the third straight day on Wednesday and looks to test $3,000.

Subscribe to our newsletter

Don't miss new updates on your email