Dollar corrects from 2021 highs, risk mood improves to start the week

The dollar registered impressive gains against its rivals last week but seems to have opened on the back foot on Monday with the US Dollar Index retreating to 95.00 area. The cautiously optimistic market mood and falling US Treasury bond yields make it difficult for the greenback to find demand. Investors await the euro area Trade Balance report and the Federal Reserve Bank of New York’s Empire State Manufacturing Survey.

The data from China revealed on Monday that Retail Sales expanded by 4.9% on a yearly basis in October, surpassing the market expectation of 3.5%. Additionally, Industrial Production grew by 3.5% in the same period, compared to analysts’ estimate of 3%. Despite the upbeat data releases, the Shanghai Composite Index is trading flat on the day. The Nikkei 225 is up 0.5% and US stocks futures are posting modest gains in the early European session.

According to Xinhua News Agency, US-China Business Council urged the US to cut tariffs and said tariff costs compounded by inflation was posing a significant burden to the US economy. Later in the day, US President Joe Biden and Chinese President Xi Jinping will have a virtual meeting.

EUR/USD touched its lowest level since July 2020 at 1.1432 on Friday and seems to have gone into a consolidation phase above 1.1450 on Monday. In the absence of high-tier macroeconomic data releases, the pair’s action could remain subdued for the remainder of the day.

GBP/USD trades in the positive territory above 1.3400 at the start of the week. The UK and the EU will engage in talks this week to try and resolve the issues surrounding Brexit’s Northern Ireland protocol.

USD/JPY fluctuates in a relatively tight range around 114.00. Bank of Japan (BOJ) Governor Haruhiko Kuroda said earlier in the day that they won’t wind down or abandon the easy monetary policy even if consumer inflation in Japan climbs to 1%. Meanwhile, the data from Japan showed that the Gross Domestic Product contracted by 0.8% on a quarterly basis in the third quarter.

Gold gained more than 2% last week with the precious metal finding demand as an inflation hedge. XAU/USD is edging lower on Monday but staying afloat above $1,850.

Cryptocurrencies: Bitcoin managed to register modest gains over the weekend and trades around $65,000 on Monday. Ethereum pushed lower in the previous couple of days but seems to have found support around $4,500. As of writing, ETH was up 1.7% on the day at $4,700.

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