Dollar loses ground as risk flows dominate markets

As risk flows return to markets early Tuesday, the greenback continues to weaken against its rivals with the US Dollar Index dropping to fresh three-week lows near 93.60. Moreover, the benchmark 10-year US Treasury bond yield is down more than 1%, putting additional weight on the USD’s shoulders. September Housing Starts and Building Permits will be featured in the US economic docket. Christopher J. Waller and Michelle Bowman, members of the Board of Governors of the Fed, will be delivering speeches as well. Nevertheless, investors will remain focused on the US T-bond yields and the overall risk perception.

Supported by strong gains seen in the Consumer Discretionary, Technology and Communication Services sectors, the S&P 500 rose 0.35% on Monday and the tech-heavy Nasdaq added 0.85%. The Nikkei 225 and the Shanghai Composite indexes rose 0.75% and 0.68%, respectively, on Tuesday, mirroring the improving market mood.

Gold started the week on the back foot and spent the majority of the day moving sideways above $1,760. However, falling the US T-bond yields seem to be helping XAU/USD gain traction on Tuesday. At the time of press, the pair was up more than 0.7% at $1,778.

EUR/USD managed to hold above 1.1600 during the Asian trading hours and started to push higher. Currently, the pair is trading at its highest level since late September around 1.1650. August Construction Output data from the Eurozone will be published later in the session but the dollar’s valuation is likely to continue to drive the pair’s action.

GBP/USD is edging higher toward 1.3800 on Tuesday. The UK and the EU will be discussing the Northern Ireland Protocol later in the week and the UK’s Office for National Statistics will release the September Consumer Price Index data on Wednesday, which could have a significant impact on the Bank of England’s rate hike expectations.

Risk-sensitive AUD/USD and NZD/USD are the top gainers of the day so far. Both of these pairs were trading at fresh multi-week highs and were up nearly 1% in the early European session.

USD/JPY reached its highest level in three years at 114.47 on Monday but reversed its direction pressured by the falling US T-bond yields. However, the risk-positive market atmosphere is not allowing JPY to continue to gather strength, causing USD/JPY to stay in a consolidation phase around 114.00.

Cryptocurrencies: Bitcoin trades above $60,000 and continues to close in on the all-time high it set near $65,000 back in April. Ethereum keeps the bullish bias in the near term but needs to clear $4,000 in order to target a new record top.

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