Markets turn cautious as attention turns to FOMC minutes
Here’s what you need to know on Wednesday, January 5:
The greenback strengthened against its rivals in the first part of the day on Tuesday but lost momentum at the end of the US session. The risk-averse market environment pushed US Treasury bond yields lower and the US dollar index moved away from the two-week high it reached earlier today. Later today, the US private sector employment report released by the ADP and the FOMC minutes from the December policy meeting will be closely watched by market participants. The IHS Markit will release the final revisions of the services and composite PMI data for the Eurozone, Germany and the United States as well.
Reflecting the marked gloom, the Shanghai Composite Index is down 1% and US equity futures are down between 0.3% and 0.55%. Persistent concerns over Chinese real estate giant Evergrande, fears of inflation and the rapid spread of the Omicron coronavirus variant are forcing risky rallies to remain limited.
Meanwhile, data from the United States showed on Tuesday that trade activity in manufacturing expanded at a slower-than-expected pace in December. On a positive note, the prices paid component of the ISM manufacturing PMI fell sharply to 68.2 from 82.4 in November.
EUR / USD closed the second day in a row in negative territory on Tuesday, but appears to have stabilized around 1.1300 in the first European session.
GBP / USD fell below 1.3500 but managed to regain its bullish momentum. British Prime Minister Boris Johnson has said they have a chance to “weather this Omicron wave” without imposing a lockdown and have helped the pound find demand.
USD / JPY extended its rally to a new five-year high above 116.00 on Tuesday. With the benchmark 10-year US Treasury bond yield edging down Wednesday morning, the pair is trading in negative territory near 116.00.
gold the inverse correlation with yields on US Treasury bonds remains intact by midweek. XAU / USD tested $ 1,800 on Tuesday but ended the day in positive territory above $ 1,810.
Bitcoin continues to trade near the lower end of its one-month trading range at $ 46,000. Ethereum closed little change on Tuesday and started climbing towards $ 4,000 early Wednesday.