Dollar Dips, Yen Peaks, and Gold Stabilizes as Central Banks Signal Changes (08.01.2024)

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Currency markets experienced significant volatility today, driven by global central bank decisions and economic indicators. The dollar index has softened, dropping to a two-week low after indications from the Federal Reserve of a possible interest rate cut in September due to positive inflation data. The Japanese yen has surged to a four-and-a-half-month peak following the Bank of Japan's rate hike, with expectations of further tightening. Gold prices remain strong, near record highs, supported by expectations of a softer US monetary stance and rising safe-haven demand on growing Middle Eastern conflicts. Meanwhile, the GBP/USD pair has edged lower with a critical Bank of England meeting that might decide between maintaining or cutting interest rates, influenced by recent economic reports.

Dollar Weakens as Fed Signals Potential Rate Cut

The dollar index fell below 104 on Thursday, reaching a two-week low after the Federal Reserve signaled its willingness to cut interest rates in September due to improving inflation data. As expected, the central bank kept the fed funds rate steady and acknowledged that, while inflation remains elevated, it has eased and is moving closer to the target. Markets are fully anticipating a 25 basis point rate cut in September, with expectations for over 70 basis points of total easing this year. On the economic front, data released Wednesday, including the ADP report and Q2 employment costs, indicated a cooling labor market. Investors are now looking ahead to the highly anticipated monthly jobs report due on Friday. At the same time, the slight increase in European inflation above expectations allowed the euro to gain some modest strength.

In the pair, the first support level is at the 200-day moving average, which is 1.0810. If this level is breached, the next supports to watch will be 1.0780 and 1.0710. On the upside, the first resistance is at 1.0840; if this level is surpassed, the next targets will be 1.0870 and 1.0900.

Japanese Yen Rises as BoJ Tightens Monetary Policy

The Japanese yen strengthened past 150 per dollar, marking its highest level in four and a half months, following the Bank of Japan's decision to raise its policy rate to “around 0.25%,” the highest since 2008. The BoJ indicated that it would continue to raise the policy rate and adjust its monetary stance if the outlook for economic activity and prices is met. Markets are anticipating two more rate hikes before the end of the fiscal year in March 2025, with the next increase expected in December. Additionally, the BoJ announced plans to reduce its monthly bond purchases to approximately 3 trillion yen starting in the first quarter of 2026. Meanwhile, data released on Wednesday revealed that Japanese authorities spent 5.53 trillion yen in July to support the currency through intervention. The yen also received a boost from the US Federal Reserve's decision to hold rates steady, with indications that rate cuts could begin in September if inflation continues to moderate.

The first resistance level is at 151.00. If this level is surpassed, the next targets will be 152.00 and 152.50. On the downside, the initial support is at 149.10; if this level is breached, the next support to watch will be 148.60 and 147.00.

Bottom of Form

Gold Nears Record Levels on Softer US Monetary Policy

Gold traded around $2,450 per ounce on Thursday, following a 1.6% increase in the previous session and staying near record highs. This stability comes during expectations of a more accommodating US monetary policy and increased safe-haven demand. The Federal Reserve, as widely anticipated, kept interest rates unchanged on Wednesday, indicating that recent economic trends—such as progress in cooling consumer prices and a weakening labor market—support a less restrictive monetary stance. Additionally, rising tensions in the Middle East are enhancing gold's appeal as a safe-haven asset. The situation in the Middle East intensified following the assassination of Hamas leader Ismail Haniyeh in Tehran, which came shortly after Israel claimed responsibility for an airstrike that killed Hezbollah's top commander in Beirut. In retaliation, Iran issued a strong statement, promising that Israel would pay a heavy price.

Before the important data releases, gold remains in a sideways trend, with the first support level at 2,430. If this level is breached, the next supports to watch will be 2,413 and 2,390. On the upside, the initial resistance is at 2,458; if this level is surpassed, the next targets will be 2,475 and 2,490.

GBP/USD Dips Before Bank of England Meeting

GBP/USD fell 0.3% to 1.2810 ahead of today’s Bank of England meeting, which is expected to be a close decision between maintaining interest rates or implementing a cut. June's headline inflation was recorded at 2%, exactly aligning with the Bank's projections from May, despite some unexpected increases in the previous months of April and May. Additionally, the rise in services inflation to 5.7% in June, compared to the BoE's estimate of 5.1%, was primarily influenced by volatile and regulated components, which are not expected to affect the medium-term inflation outlook. This view is supported by several members of the Monetary Policy Committee, as noted in the June minutes.

Moreover, the labor market report for July indicated clearer signs of a slowdown in wage growth, with private sector regular pay falling by 0.3 percentage points to 5.6% year-on-year in May, which is generally consistent with the BoE's forecast from May.

The initial support lies at 1.2785, followed by 1.2735 and 1.2660 below. On the upside, the first resistance is at 1.2830, with subsequent levels at 1.2870 and 1.2900 if the pair breaks above this resistance.