Forex Today: Dollar rebounds with yields amid a quiet start to the US inflation week


Here is what you need to know on Monday, December 6:

The market mood remains cautiously optimistic, as investors assess the implications of faster Fed’s tightening and tapering against the incoming encouraging news on the Omicron covid variant.

Bloomberg reported that the new variant cases have surged South Africa, although the good news is that patients need less medical intervention. Meanwhile, investors remain hopeful that a could be found to fight the Omicron covid strain. Adding to the optimism, US medical adviser Anthony Fauci said the variant’s severity may be limited.

The S&P 500 futures gain 0.55% so far this Monday, reflecting the broader market optimism while the risk-on flows reduce the demand for the US Treasuries, triggering an impressive bounce in the yields across the curve.

The rebound in the US rates is propping up the dollar’s demand, as the hawkish Fed expectations remain alive and kicking, despite the mixed employment data and upbeat ISM Services PMI. The headline Nonfarm Payrolls rose by 210K in November vs. 550K expected but an upward revision to the previous figure and an uptick in the participation rate back the Fed’s rate hike calls.

Among other relevant news, Friday’s comments from China’s Premier Li Keqiang stoked up Reserve Ratio Requirement (RRR) cut expectations as soon as this month. China's 10-year yields dropped 5 bps to 2.85%.

Stimulus hopes from Beijing kept the sentiment buoyed around the Chinese stock, hit by the recent concerns over the country’s technology sector. The Nikkei 225 and Australian equities traded flat to lower.

Across the G10 currencies space, the aussie outperforms amid stronger Australian job ads data, which flagged risks of a hawkish surprise from the RBA.

Meanwhile, EUR/USD is trading under pressure below 1.1300 while GBP/USD is consolidating the bounce above 1.3200, with investors sceptical amid looming Brexit and covid risks.  

USD/JPY recaptures 113.00, tracking the renewed upside in the Treasury yields. USD/CAD is heading lower towards 1.2800 amid a roughly 3% upswing in WTI prices. The black gold is battling the $68 mark amid risk recovery.

Gold is holding onto Friday’s solid turnaround from four-week troughs of $1,761 amid the mixed sentiment and firmer yields.

A quiet start to the week will leave the market at the mercy of the risk sentiment and the latest Omicron updates. The economic calendar light, with the German Factory Orders, Eurozone Sentix and BOE policymaker Ben Broadbent’s speech of note. The key event risk this week is expected to be the US Consumer Price Index (CPI) due for release on Friday.

Bitcoin is licking its wounds after the weekend’s turmoil. The pioneer cryptocurrency currently trading about 1.50% lower on the day, around $48,750.

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