Forex Today: US Dollar strengthens in a risk-averse environment

What you need to take care of on Tuesday, February 7:

The US Dollar extended its Friday rally to fresh February highs against most major rivals, fueled by a dismal market mood.

Political tensions between Washington and Beijing weighed on the market mood, further fueling demand for the American currency. An apparent surveillance balloon from China flew through US skies last week, with the saga ending after President Joe Biden's administration took it down on Saturday. As a result, diplomatic relations between both countries were temporarily interrupted as the United States postponed Secretary of State Blinken's forthcoming trip to China.

EUR/USD fell to 1.0708, bouncing towards the current 1.0720 price zone but ending a third consecutive day in the red. Poor EU data further weighed on the Euro. Germany published December Factory Orders, which fell by 10.1% YoY, much worse than anticipated. On the other, Euro Zone Retail Sales fell by 2.7% MoM in January and by 2.8% compared to a year earlier.

GBP/USD trades around 1.2020. Earlier in the day, Bank of England Chief Economist Huw Pill said that UK policymakers are prepared to do more to get inflation back to target, as chances of inflation getting embedded in the United Kingdom are higher than in Europe.

AUD/USD trades around 0.6880 ahead of the Reserve Bank of Australia's monetary policy decision. The Canadian Dollar edged sharply lower, with USD/CAD now hovering at around 1.3440.

USD/JPY gapped higher at the weekly opening, and the gap remains unfilled. The pair currently trades at around 132.50, with eyes on a potential pullback to 131.20.

US Treasury yields advanced. The 10-year note currently yields 3.63%, up 10 bps, while the 2-year note offers 4.43%, up 13 bps. Stock markets, on the other hand, trade in the red, WITH US indexes losing some ground after their European counterparts settled in the red. 

Spot gold bottomed at $1,860.20 a troy ounce, a fresh one-month low, bouncing modestly to end the day at $1,866. Crude oil prices fell intraday but managed to recover some ground. WTI posted a modest intraday advance and settled at $74.30.