Hawkish Fed smashes reflation trades, yields; gold bounces amid risk-aversion

A risk-aversion wave has gripped the markets starting out a fresh week, as the Fed’s hawkish turn prompts dialing back of reflation bets while weighing heavily on the Treasury yields and equities.

The US returns on the market hit the lowest levels in four months, with the 30-year yields back below the 2% level. The US Treasury yield curve flattened after the Fed projected two interest-rate hikes by the end of 2023.

The Asian stocks are a sea of red, as the Japanese benchmark Nikkei 225 index sheds almost 4%. The futures tied to the S&P 500 index drops 0.50% towards 4,100.

Across the G7 fx space, the yen emerges the strongest amid tumbling yields and risk-off mood, hammering USD/JPY below 110.00. Meanwhile, the Antipodeans advances, as investors believe that the Emerging Markets’ central banks are likely to outdo the Fed’s tightening pace. AUD/USD hovers around 0.7500, shrugging off downbeat Australian Preliminary Retail Sales.

EUR/USD eases towards 1.1850, as the US dollar holds onto last week’s gains amid sooner-than-expected Fed rate hikes, especially after St. Louis Fed President James Bullard said that he sees a Fed lift-off in late 2022.

GBP/USD drops back below 1.3800 amid Brexit concerns and the delay in the UK reopening, in light of rising worries about the Delta COVID-19 variant.

Gold is attempting a bounce from two-month lows amid falling yields, although broadly firmer US dollar is likely to limit the rebound.

Bitcoin has recaptured $34,000 but remains in the hands of the sellers, as Bitcoin hashrate suffers a massive drop on China’s continued crackdown on BTC mining.

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