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Gold sees glimmer of hope as US dollar hits raw levels

Gold fell to a 16-month low last week but managed to recover and ended the week with a 1.1% gain, ending its five-week losing streak. Despite the recovery, there is little incentive for the yjegold bulls as they face their next big challenge. raisedmonetary policy decision next week.

Gold has been acting more like a commodity than a safe-haven or an inflation hedge over the past few weeks and this trend remains intact. Overall market sentiment remains on the US dollar against riskier assets like commodities and stocks.

The US dollar index has been up since the start of the year but a stronger pace since earlier this month as growth concerns and Fed tightening expectations have spurred investors towards the currency.

While there are no major developments to highlight a change in trend for the US dollar, it is struggling to build on the upside amid the lack of fresh triggers and this leaves it vulnerable. take profit.

The US dollar index fell 1.2% last week, marking its first drop in four weeks and correcting more than 2% from the 2002 high set earlier this month. Based on weekly RSI read, the dollar index has been in the overbought zone for quite some time and this could leave it vulnerable to a correction.

The US currency lost momentum in the face of challenges from disappointing US economic data and other central banks’ monetary tightening.

US economic numbers were mixed however some disappointing data last week showed growing stress in the economy. US weekly jobless claims rose to an eight-month high. Philadelphia FedFactory activity index in July fell for the second consecutive month in July. The index of leading indexes fell for a fourth straight month, adding to the debate about a recession. Meanwhile, services PMI A drop below 50 indicates a contraction in the sector.

The outlook for the US economy has deteriorated as the US central bank embarks on aggressive monetary tightening to control inflation. Given the dismal economic results, market investors are expecting the Fed to take a more measured approach.

The dollar’s rally over the past few months is also expected that the Fed can lead other central banks in monetary tightening. The US currency lost momentum last week as well European Central Bank join other central banks in monetary tightening

The ECB raised rates for the first time since 2011 and decided to raise its direct lending rate by 0.5%, surprising some who were expecting a more gradual approach. The ECB has begun its rate hike cycle to curb inflation, but there is still uncertainty about the future pace of rate hikes.

The Japanese yen also strengthened against the US dollar last week even as the Bank of Japan left monetary policy unchanged as expected and reiterated its support for accommodative monetary policy. . BOJ however, the inflation forecast is increasing, showing caution against increasing price pressures.

The direction of the US dollar is a key factor not only for gold but also for commodities in general and the next test for the US currency is the Fed’s monetary policy decision on July 27. debate increases if the Fed can continue with 75 basis points. increase or consider an even larger and unprecedented 1% increase to control inflation. The general market expectation is that the Fed can continue with the current rate of increase of 0.75%. If the Fed lives up to market expectations, this could be seen as a sign that the central bank may avoid aggressive moves to support the economy. The dollar’s recent correction suggests we’re headed in that direction, however if the Fed shows any signs of slowing down we could see further US currency losses, which could general cargo support.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by experts are their own. They do not represent the views of The Economic Times)

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