US Dollar rally pauses as focus shifts to PMI data, FOMC Minutes

Following Tuesday’s impressive rally, the US Dollar Index seems to have gone into a consolidation phase at around 104.50 early Wednesday. S&P Global will release the December Services PMIs (final) for Germany and the Eurozone in the European session. The US economic docket will be packed with high-tier data releases. The ISM will publish the Manufacturing PMI for December, the US Bureau of Labor Statistics will announce the JOLTS Job Openings data for November. Finally, the FOMC will release the minutes of the December policy meeting.

Following the three-day weekend, Wall Street’s main indexes struggled to gain traction on Tuesday. With investors remaining cautious, the US Dollar found demand as a safe haven and managed to outperform its rivals. In the meantime, the benchmark 10-year US Treasury bond yield lost more than 2% on a daily basis. In the early European session, the 10-year US T-bond yield is already down nearly 1% and US stock index futures trade modestly higher on the day.

EUR/USD lost more than 100 pips on Tuesday and touched its lowest level since December 13 at 1.519 before closing at 1.0550. The pair clings to modest recovery gains near 1.0570 early Wednesday.

AUD/USD rose sharply during the Asian trading hours and was last seen rising more than 1% on the day above 0.6800. Earlier in the day, reports suggesting that China was considering a partial end to its ban on imports of Australian coal seem to have provided a boost to the Australian Dollar. On a negaive note, China’s Finance Minister Lie Kun noted that China’s economic recovery was still not solid. He added that a possible contraction in demand and renewed disruptions to supply were downside risks. Nevertheless Shanghai Composite Index remains on track to close modestly higher while Hong Kong’s Hang Seng Index is up more than 2% following Tuesday’s rally.

GBP/USD closed the first two trading days of the week in negative territory. With the US Dollar losing some strength in the European morning, the pair clings modest recovery gains a few pips above 1.2000.

USD/JPY came under renewed bearish pressure in the Asian session and declined below 130.50. Bank of Japan (BoJ) Governor Haruhiko Kuroda said on Wednesday that the Japanese central bank will continue monetary easing to achieve the price target in tandem with wage growth. This comment, however, doesn’t seem to be weighing on the Japanese Yen for the time being. On a hawkish note, the Nikkei Asian Review reported that Prime Minister Fumio Kishida said that they will discuss whether they need to rework the inflation target with the new BoJ governor.

Despite the broad-based US Dollar strength, Gold price surged higher on Tuesday with the 10-year US T-bond yield declining sharply. XAU/USD preserves its bullish momentum and trades at its highest level since mid-June slightly above $1,850.

Bitcoin gained traction mid-week and was last seen gaining more than 1% on the day at $16,860. Ethereum closed flat on Tuesday but gathered bullish momentum on Wednesday. ETH/USD was last seen trading at its highest level in nearly three weeks at $1,250, rising 3% on a daily basis.

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