Dollar retreats alongside yields, risk mood to drive markets

Following its impressive rally to a fresh 2021 high above 96.00, the US Dollar Index edged lower on Wednesday as the retreating US Treasury bond yields made it difficult for the greenback to continue to outperform its rivals. The trading action remains subdued early Thursday and the risk sentiment could drive the markets in the absence of high-tier macroeconomic data releases.

The US Department of Labor’s weekly Initial Jobless Claims will be the only data featured in the US economic docket. New York Federal Reserve President John Williams and Chicago Federal Reserve Bank President Charles Evans are scheduled to speak later in the day as well. Market participants will also keep a close eye on the Central Bank of the Republic of Turkey’s policy announcements after USD/TRY reached a new all-time high near 11.00.

The benchmark 10-year US Treasury bond yield lost nearly 3% on Wednesday and stays relatively calm below 1.6% on Thursday. Wall Street’s main indexes finished the day in the negative territory but US stock index futures are edging higher in the early European session, pointing to an improving market mood.

EUR/USD managed to close above 1.1300 on Wednesday but seems to be having a difficult time gathering bullish momentum. European Central Bank (ECB) Governing Council Member Isabel Schnabel said that the rise in inflation was a welcome development. She further noted that the fact that the ECB continued to buy bonds was a sign that a rate hike was not imminent.

GBP/USD climbed to a fresh weekly high near 1.3500 and looks to extend its rebound. Hot inflation data from the UK seems to be supporting the British pound as investors eye fresh Brexit headlines.

USD/JPY erased its weekly gains on Wednesday pressured by the falling US Treasury bond yields. The pair is currently trading in a narrow band above 114.00.

Gold capitalized on the broad dollar weakness and snapped a two-day losing streak. As of writing, XAU/USD was moving sideways below $1,870. On Tuesday, the pair touched a multi-week high of $1,877.

USD/CAD advanced to its strongest level in more than a month on Wednesday and seems to have gone into a consolidation phase above 1.2600. Falling crude oil prices are making it difficult for the commodity-sensitive CAD to find demand. The barrel of West Texas Intermediate is currently trading at its lowest level in nearly six weeks at $77.75.

Cryptocurrencies: The selling pressure surrounding Bitcoin weakened on Wednesday but BTC/USD continues to trade below the key $60,000 mark. Ethereum managed to register modest gains on Wednesday and stays afloat above $4,000.

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