Here is what you need to know on Tuesday, July 5:

Following the three-day weekend in the US, the dollar started to gather strength against its rivals early Tuesday with the US Dollar Index approaching its highest level in nearly two decades above 105.50. The US economic docket will feature Factory Orders data for May. The 10-year US Treasury bond yield is up nearly 1% in the early European session, helping the greenback find demand. In the meantime, US stock index futures are up modestly, pointing to a slightly upbeat market mood. Later in the day, the Bank of England will release its Financial Stability Report.

The Wall Street Journal reported on Monday that US President Biden's administration planning to roll back some tariffs on Chinese imports in an attempt to ease inflationary pressures. Meanwhile, the data from China showed that the Caixin Services PMI rose sharply to 54.5 in June from 41.4 in May, surpassing the market expectation of 47.3 by a wide margin.

Earlier in the day, the Reserve Bank of Australia (RBA) announced that it hiked its policy rate by 50 basis points (bps) to 1.35% from 0.85%. This decision came in line with the market expectation but the RBA's neutral tone on policy outlook made it difficult for the AUD/USD pair to gather bullish momentum. The RBA said that medium-term inflation expectations remain well-anchored and noted that the size and timing of future rate increases will depend on data. As of writing, AUD/USD was down 0.8% on the day at 0.6810.

EUR/USD stays under heavy bearish pressure early Tuesday and trades deep in negative territory below 1.0400. European Central Bank (ECB) Governing Council member Madis Muller and ECB Vice President Luis de Guindos both said on Monday that a 25 bps rate hike in July would be appropriate. 

GBP/USD closed the first day of the week virtually unchanged but turned south in the European morning. The pair was last seen trading below 1.2100.

In its quarterly survey, the Bank of Canada (BOC) said that the 1-year-ahead consumer inflation expectations jumped to 6.8% from 2.2%. "Survey shows concern over near-term inflation has increased and inflation is expected to run higher for longer than the previous survey," the BOC said. After having posted small daily losses on Monday, the USD/CAD pair is recovering toward 1.2900 on Tuesday.

Supported by rising US yields, USD/JPY climbed above 136.00 on Tuesday. In the early Asian session, the data from Japan showed that the business activity in the service sector continued to expand at a healthy pace in June with the Jibun Bank Services PMI arriving at 54.

Gold failed to make a decisive move in either direction and continue to move sideways in a tight range above $1,800 early Tuesday.

Bitcoin staged a rebound on Monday and managed to reclaim $20,000. Ethereum gained more than 7% on Monday and was last seen rising 1% on the day at $1,160.

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