Forex today: Risk-off comes back into play, equities flop and USD, Yen gain more ground

Risk aversion returned to the markets in Tuesday's trading, knocking back most of Monday's gains as traders once again pull chute, sending the US Dollar higher against the broad currency bloc and driving the Yen back upwards, sending the USD/JPY pair to a low of 105.23 heading into Wednesday.

Markets were bidding swiftly on Monday to kick off the week following renewed confidence that the US and China would come to agreeable trade terms that would divert the looming trade war as both countries take turns leveling trade tariff threats at each other, but that confidence has evaporated and sentiment has returned to a grudging stupor.

Inflation fears and a lack of certainty over the Fed's rate hikes looking forward are also continuing to weigh on confidence, and analysts at Nomura are expecting the Greenback to continue capitalizing on the broad market confusion. 

Dollar, Yen dominate all comers

The Sterling and the Euro both drifted lower in the European session, with the EUR sinking on surprisingly dovish comments from the European Central Bank's (ECB) Governing Council member Liikanen said that patience is needed in removing stimulus, setting a notably weaker tone on the EU's potential for leaving easy monetary policy, while the Bank of England (BoE) is considering adding some breathing room to capital buffers for banks, which took some wind out of the Pound's sails. The EUR fell to a session low of 1.2372 while the GBP dumped to 1.4065. Both currencies managed to stage a recovery, but Dollar bidding in the US session capped off potential gains and the Euro and Sterling finished the day at 1.2407 and 1.4175 respectively.

The Yen is gaining ground once again as investors flock for the safe haven and the US Dollar's recovery from recent lows of 104.65 took a beating. 

The Antipodeans faired poorly, and head into Wednesday on a low note, with the Aussie knocking on last week's lows of 0.7675, and the Kiwi managed to fight off the bears but still swing lower into the 0.7260 range.

Key notes from the previous session:

US stocks struggle to build on overnight strong rebound

US Dollar eases from tops on US data, around 89.40

ECB and Fed: peak divergence still lies ahead - BBH