The US dollar traded higher on Tuesday as investor risk aversion continued.
As at 1344 GMT, the dollar basket was up 0.43%, following on from Monday´s sharp gains, a day on which investor angst saw the US large-cap S&P 500 equity index lose 4.1%.
Many investors also viewed the dollar as having been ripe for a recovery following a pronounced sell-off against major currencies over recent weeks.
Meanwhile, risk aversion continued with UK and European stocks falling in the aftermath of Monday´s equities sell-off in the US.
The FTSE 100 was down by just over 2%, while the CAC, DAX and Eurostoxx were down by 2.8%, 2.4% and 2.7% respectively.
However, overall currency markets were relatively calm on Tuesday, with commodity and emerging market currencies, the natural candidates for weakness amid risk aversion, appearing relatively stable.
US Treasury yields were also more or less stable on Tuesday, a sign that the US equity market could have a more peaceful day ahead of it.
The 10-year Treasury yield was little changed at 2.76%.
Rising US bond yields have been a source of concern over recent weeks (bond prices move inversely to yields) as investors have priced in higher US inflation expectations.
US 10-year Treasury yields began the year at 2.4%.
Higher inflation expectations
Higher inflation should translate into a more hawkish Fed with an accelerating pace of interest rate tightening potentially creating a major headache for equity investors.
The US payrolls report released on Friday showed US wages were growing at the fastest rate in around eight years.
“This added fuel to a bond market sell-off, pushing US 10-year Treasury bond yields closer to the magic 3% level, which will only increase borrowing costs for corporates following years of cheap financing, thus ushering equities further from recent highs,” said Mike van Dulken at Accendo Markets.
While many investors viewed the dollar as having been ripe for a recovery following a pronounced sell-off against major currencies over recent weeks, rising US inflation and talk of higher-than-expected US interest rates have provided the natural catalyst.
Equities futures indicated US equities would likely open flat to slightly lower on Tuesday.