Dollar pauses rally, metals correct gains

On Friday, the greenback slid, trading slightly lower against its major peers as it retreated from the highest level since July 2020. Still, the EURUSD pair was below 1.15, and the dollar index traded above 95.00.

The two-year US yield rose yesterday to the current cycle highs of 0.55%, and it looks like the bullish momentum in short-term yields could continue. In contrast, the 10-year yield is down today, trading at around 1.575%.

Markets are now pricing in a first-rate increase by July and a high likelihood of another by November. But, on the other hand, the Fed itself remains much more dovish, not projecting two rate hikes in 2022.

“Clearly higher inflation is becoming problematic for both the Administration and the Fed. In this light, we suspect Washington will not mind the dollar breaking to the highs of the year as the currency can do some of the tightening of monetary conditions,” said analysts at ING in a note.

On the other hand, interest rates in the EU bloc will probably remain negative for the foreseeable future as European Central Bank President Christine Lagarde said last week that higher interest rates next year were improbable.

Elsewhere, precious metals corrected their gains today, pushing silver back below 25 USD and gold below 1,850 USD. However, the medium-term ascending trend in metals seems bullish.

Later in the day, traders will focus on Michigan Consumer Sentiment Index for November, expected to improve marginally from 71.7 to 72.4. In addition, JOLTS job openings will also be released, potentially causing some volatility in the markets.