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USD gains on jobless claims, BoE rate hike

 

Friday, June 23, 2023

Today’s headlines

What’s happening: The US dollar gained on Thursday as traders digested Bank of England’s interest rate decision.

What happened: The greenback had come under pressure following comments from the Federal Reserve Chairman Jerome Powell.

The US dollar reversed those losses after the release of jobless claims data from the Labor Department.

Why it matters: The Bank of England raised its policy interest rate by 50 basis points to 5.0% at its June meeting. The latest hike marks the 13th straight increase by the UK’s central bank in its fight to curb soaring inflation.

While a rate hike was widely anticipated, speculations were of a smaller increase of 25 bps. The latest BoE decision sent borrowing costs in the UK to their highest levels since the 2008 crisis.

The bank’s policymakers also said there could be further rate increases in case inflationary pressures persist. The recent data from the UK showed inflation unexpectedly coming in steady at 8.7% in May, higher than market expectations of 8.4% and significantly above the the central bank’s target of 2%. The country’s core inflation rate accelerated to a 31-year high of 7.1%.

During his second day of testimony to the US Senate Banking Panel, Federal Reserve Chair Jerome Powell said more rate hikes may be needed to cool off inflation. At last week’s meeting, the US central bank kept its benchmark interest rate unchanged.

The US Labor Department said initial jobless claims came in at 264,000 for the week ending June 17, higher than market expectations. The four-week moving average rose by 8,500 to 255,750.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.31% to 102.39 on Thursday. The EUR/USD forex pair fell around 0.3% to $1.0956. The greenback also settled higher against the Japanese yen.

What to watch: Traders await the release of manufacturing and services PMI data from the US today. The S&P Global US manufacturing PMI, which was revised lower to 48.4 in May, is expected to rise to 48.7 in June. Analysts expect the US services PMI to decline to 53 in June, from a reading of 54.9 in May.

The markets today

Gold will be in focus today after closing lower on Thursday

Context: Gold prices fell to their weakest level since mid-March on Thursday as traders monitored the monetary policy decision by the leading central banks.

Details: The safe-haven metal remained on a downward trajectory last week, with the US Federal Reserve announcing plans to hold interest rates at its June meeting, after raising the same for ten consecutive meetings. However, Fed Chairman Jerome Powell signalling further rate hikes ahead.

Interest rate hikes by central banks typically weigh on gold and silver prices, as they make currencies more attractive for traders.

The Bank of England announced a rate hike of 50 basis points on Thursday, higher than market expectations of a hike of 25 bps.

The central banks of Switzerland and Norway also hiked their interest rates, while Turkiye’s central bank delivering a sizable rate increase.

Hawkish remarks by Powell, during its second day of testimony to the US Senate Banking Panel, exerted further pressure on metals on Thursday. Powell said a strong majority of the central bank’s policymakers are supporting further rate increases this year.

Strength in the US dollar also exerted pressure on gold prices on Thursday, as a higher greenback makes metals more expensive for foreign currency holders.

Gold for August delivery fell by $21.20 to close at $1,923.70 an ounce, while silver for July delivery declined by 34 cents to $22.47 an ounce.

In other metals trading, July copper slipped 2 cents to $3.89 a pound, while platinum fell $23.9 to $926.5 and palladium lost $53.90 to end at $1,272.60.

What are expectations: Traders await more comments from global central bank officials regarding their monetary policies, which could significantly impact gold prices ahead. Markets will also watch the performance of the US dollar after economic data releases by the country.

Other Markets: European indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.76%, 0.22%, 0.79% and 0.51%, respectively.

The news shaping the markets

The UK said that foreign donors had pledged new financial support worth €60 billion for Ukraine. The news sent the safe-haven US dollar index higher this morning.


Japan’s services business activity index fell to 54.2 in June, versus a record high of 55.9 in May. However, the index remaining in the expansion zone lent support to the JPY/USD forex pair.


Australia’s Judo Bank services PMI slipped to 50.7 in June, from 53.7 in the prior month, which sent the AUD/USD pair lower in forex trading this morning.


Argentina’s unemployment rate rose to 6.9% in the first quarter, from 6.3% in the prior period. However, the employment rate also climbed to 45%, from 44.6%, which lent support to the ARS/USD forex pair.


Bank of Mexico maintained its benchmark policy rate at 11.25% for the second time at its latest meeting, which sent the MXN/USD pair lower in forex trading this morning.

What else to watch today

UK’s retail sales volumes, manufacturing PMI, services PMI and  composite PMI, Spain’s GDP Growth Rate, Turkey’s economic confidence index, balance of trade and tourist arrivals, France’s services PMI, manufacturing PMI and composite PMI, Germany’s manufacturing PMI, services PMI and  composite PMI, Eurozone’s services PMI, manufacturing PMI and composite PMI, Canada’s manufacturing sales and wholesale sales, US services PMI, manufacturing PMI, composite PMI and Baker Hughes crude oil rigs, as well as Argentina’s leading economic index and retail sales.


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