Forex Today: No reprieve for risk assets

Here is what you need to know on Tuesday, May 10:

Wall Street's main indexes suffered heavy losses on Monday and the S&P 500 touched its lowest level in a year below 4,000. Although markets stay relatively quiet early Tuesday, US stock index futures are down between 1.3% and 1.7% while the US Dollar Index consolidates its gains below 104.00. ZEW Survey from Germany and the NFIB Business Optimism Index from the US will be looked upon for fresh impetus. Market participants will pay close attention to comments from central bankers as well. 

Investors grow increasingly concerned over a global economic slowdown as coronavirus-related restrictions in China continue to weigh on the international trade activity. Despite the falling number of cases in Shanghai, authorities have reportedly tightened measures as the government doubles down on the "zero-COVID policy." Additionally, lingering supply-chain issues are expected to cause global inflation to continue to rise for longer than expected. In the meantime, there are no signs of a de-escalation of the Russia-Ukraine crisis.

Following a 3% decline on Monday, the benchmark 10-year US Treasury bond yield is holding in positive territory above 3.05% early Tuesday. Atlanta Federal Reserve President Raphael Bostic said on Monday that a 75 basis points rate hike was not his baseline scenario but added that the wasn't taking anything off the table. On an optimistic note, Minneapolis Fed President Niel Kashkari said that he was confident that inflation will return to the Fed's 2% target.

EUR/USD lost its traction after rising toward 1.0600 but ended up closing modestly higher on Monday. In the early European session, the pair is moving sideways above 1.0550. 10-year German government bond yield climbed to its highest level in more than seven years at 1.19% on Monday, helping the shared currency stay resilient against the greenback.

GBP/USD staged a rebound after having slumped to its lowest level in nearly two years at 1.2261 on Monday. The pair trades with small gains at around 1.2350 in the European morning.  Commenting on his decision to vote for a 50 bps rate hike last week, "I put considerable weight on risks that, unless checked by monetary policy, domestic capacity and inflation pressures would probably be greater and more persistent than the central forecast," Bank of England Monetary Policy Committee member Michael Saunders said. "As a result, my preference has been to move relatively quickly to a more neutral monetary policy stance," he further explained.

USD/JPY fluctuates in a relatively tight range above 130.00 on Tuesday. Bank of Japan Executive Director of Monetary Policy, Shinichi Uchida, said earlier in the day that they must continue to support the economy with powerful monetary easing.

Gold fell sharply on Monday but seems to have shaken off the bearish pressure before testing $1,850. XAU/USD consolidates its losses at around $1,860 and remains at the mercy of global bond yields.

Bitcoin slumped to its lowest level since July 2021 at $29,735 on Monday before staging a rebound. BTC/USD was last seen rising more than 6% at $31,900. Ethereum lost 11.5% on Monday and registered one of its biggest daily declines of the year. ETH/USD is rising more than 7% at around $2,400 early Tuesday.