The US dollar could continue to find support as traders’ expectations of higher interest rates were reinforced by the release of the Federal Reserve’s minutes yesterday. Fed members have also pointed to resilient business conditions and a solid job market that could support new interest rate hikes and a stronger dollar over the longer term.
“Over the short term, traders could remain cautious before several data releases, in particular regarding the US job market,” said Denys Peleshok, Head of Asia at CPT Markets. “As a result, the dollar could see some volatility during the remainder of the week as traders integrate the new data into their outlook. In the meantime, yields on US treasuries could continue to rise ahead of the Federal Reserve’s meeting later this month.”
The dollar continued to see some potential against the euro overnight. However, Peleshok thinks the pair could continue to see some volatility as both the European and American central banks continue to push a hawkish agenda. The European Central Bank has kept raising rates non-stop and could maintain the same pace to try to pull inflation down, which remains more elevated than in the US.
Traders have reacted to a stronger-than-expected increase in German factory orders as well. The data provided some support to the euro. However, traders’ attention could remain directed toward the US currency as well, Peleshok said this morning (Thursday).
However, the dollar continued its decline against the Japanese yen as the threat of intervention from the Bank of Japan could weigh on expectations. While the large differential in interest rates has been detrimental to the yen, the risks of intervention could affect this trend in its favour.
- Tabula’s gold ETC launch applies higher ethical standards to physical gold
- Three markets to watch if the Israel-Iran conflict escalates
- Critical few days of trading in the USD/JPY market ahead
- Armchair Academy: Introduction to Precious Metals
Pressure continues on gold price
Pressure has also continued on gold prices this week, with the yellow metal failing to consolidate above the level of $1918 an ounce, after the announcement of the minutes of the Federal Open Market Committee meeting and the rise in the dollar and bond yields. The minutes of the last meeting of the FOMC showed the continued hawkish tone from many of its members towards carrying out more interest rate hikes this year, despite the temporary pause in last June.
“The minutes of the FOMC meeting indicated that the temporary pause in raising the interest rate in June was aimed at buying some time and waiting for more economic data to form a clearer perception about the state of the US economy, especially after the banking turmoil that led to the collapse of some regional banks,” explained Samer Hasn, an analyst with CFD broker XS.com.
Hasn said the minutes also demonstrated the opposition of some members of the FOMC to the decision to fix the interest rate in June with many leaning towards raising it by 25 basis points, in addition to talking about more hikes during the year.
“This hawkish tone from the Federal Reserve pushed the price of gold to decline to approximately $1915 an ounce, at the height of yesterday’s declines,” he added.
The markets are also anticipating today and tomorrow more labour market numbers, which may be decisive for the gold markets.
“Today, we await the announcement of the initial jobless claims, which are expected to record some increase compared to last week,” Hasn said. “We are also awaiting today the new job openings (JOLTs) figures, which are expected to come at the lowest levels since last March, and finally we are watching the non-farm payrolls report for tomorrow, as the US economy is expected to add 225K jobs, at the lowest level since last January.”
In addition to the labour market numbers, traders are focused on the ISM non-manufacturing PMI reading for June which comes after a series of negative figures for manufacturing and services activity around the world raised uncertainty and recession fears.
