- A survey of inflationary pressures on the Fed
- Full pricing for US rate cuts
The dollar fell in European trade on Friday against a basket of major rivals, resuming losses and heading for the second loss in three days amid full pricing for Fed rate cuts in September and November.
To reassess such prospects, investors now await important US personal spending data for June, which will showcase the extent of inflationary pressures on Fed policymakers.
The Price
The dollar index fell 0.1% today to 104.25, with a session-high at 104.45.
The index closed up 0.1% on Thursday, the second profit in three days as the yen surge waned.
Sudden Contraction
Earlier US data showed the manufacturing PMI down to 49.5 in July, diving below the 50 barrier that separates growth from contraction, while analysts expected an increase to 51.7.
US Rates
Following the data, and according to the Fedwatch tool, the odds of Federal Reserve rate cuts in both September and November rose to 100%.
US Spending Data
Now investors await important US personal spending data for June, important for gauging the state of inflation in the country, and the likely path ahead for monetary policies.
- The precious metal is heading for second weekly loss in row
- Markets await US personal spending data
Gold prices rose in European trade on Friday for the first time in three days away from two-week lows as the yen surge waned.
The precious metal is on track for the second weekly loss in a row despite full expectations of Fed rate cuts in September and November.
Now investors are assessing such prospects with upcoming US personal spending data for June.
Prices
Gold prices rose 0.6% today to $2379 an ounce, with a session-low at $2355.
Gold lost 1.4% on Thursday, the second loss in a row, marking two-week lows at $2353 an ounce as the yen surged.
Yen’s Surge Wanes
Yen lost some of its momentum on Friday, trimming the gains and reducing the pressure on most financial assets, including stocks, gold, and bitcoin.
The unwinding of the yen carry trades triggered a massive rally by the yen against main rivals as investors reassess their long-term trade strategies.
Weekly Trades
Gold is down 0.9% so far this week on track for the second weekly loss in a row.
Gold remains with a positive outlook, with some analysts expecting a surge to $2500, especially as the Fed prepares to ease policies and cut rates.
Lower interest rates underpin non-yielding assets such as gold as they become attractive again to investors.
Sudden Contraction
Earlier US data showed the manufacturing PMI down to 49.5 in July, diving below the 50 barrier that separates growth from contraction, while analysts expected an increase to 51.7.
US Rates
Following the data, and according to the Fedwatch tool, the odds of Federal Reserve rate cuts in both September and November rose to 100%.
US Spending Data
Now investors await important US personal spending data for June, important for gauging the state of inflation in the country, and the likely path ahead for monetary policies.
The SPDR
Gold holdings at the SPDR Gold Trust rose 3.45 tonnes yesterday to a total of 845.19 tonnes, the highest since February 6.
- The Japanese currency is hovering near 2-⅕ month high
- Inflationary pressures are mounting on BOJ ahead of next week’s meeting
The yen powered up in Asian trade on Friday against a basket of major rivals, resuming gains against the dollar and approaching 2-⅕ month highs.
The yen has marked a stunning weekly performance so far, likely the best since April, as traders quickly unwind their carry trades ahead of Bank of Japan’s next week meeting, while the Federal Reserve is now fully expected to cut interest rates in September and November.
Earlier official data showed Tokyo’s consumer prices rising in July, showcasing the increasing inflationary pressures on the central bank.
The Price
- The JPY/USD fell 0.35% today to 153.37 yen, with a session-high at 154.14.
- The yen lost 0.1% on Thursday against the dollar, the first loss in four days on profit-taking away from 2-⅕ month highs at 151.94 yen.
Weekly Trades
Across this week, the yen is up over 2.5% against the dollar so far, on track for the fourth weekly profit in a row, and the largest since late April.
What’s a Carry Trade?
Carry trades are one of the best and most important strategies used by traders to build long-term trading positions and utilize the interest rate gap between currencies.
Carry trades entail the borrowing of low-yield currencies such as yen to buy high-yield currencies such as the dollar to gain from the rate difference.
Unwinding Carry Trades
Traders are rushing to unwind yen carry trades en masse amid speculation about the Bank of Japan’s next policy meeting.
Reuters reported the BOJ will discuss rate hikes, and will reveal plans to reduce bonds purchases by half in upcoming years.
Conversely, recent weak US industrial data boosted the odds of Fed rate cuts in September and November to 100%.
Thus the Bank of Japan is on track to normalize and tighten its policies, while the Federal Reserve prepares to ease its policies.
Tokyo Inflation
Earlier government data showed Tokyo’s consumer prices rose 2.2% in July, up from 2.1% in the previous reading.
Prices are now running above the 2% official target for policymakers, boosting the case for another Japanese rate hike this year.
US stock indices rose on Thursday after positive data while investors assess corporate results.
The preliminary reading of the US GDP data showed a growth rate of 2.8% in the second quarter, above estimates of 2.1%, and up from 1.4%.
Investors continue to assess the latest corporate earnings data, including Amazon.com, and soon we’ll see Apple and Microsoft earnings.
On trading, Dow Jones rose 1.1%, or 452 points as of 17:48 GMT to 40,306, while S&P 500 rose 0.9%, or 47 points to 5475, as NASDAQ added 0.8%, or 140 points to 17,487.
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