Dollar Stabilizes, Yen Weakens, and Gold Holds Steady (08.06.2024)

The dollar index finds support around 102.8 as investors evaluate recession risks amid mixed economic signals, stabilizing against the euro. The yen weakens to 145 per dollar as carry trade unwinding slows and monetary policy divergences between the US and Japan become more pronounced. Gold steadies at $2,410 per ounce, maintaining its safe-haven appeal amid ongoing recession fears and Middle East tensions. Meanwhile, UK retail sales rebound, driven by consumer spending on fashion and beauty, as GBP/USD tests key resistance at 1.2790. Dive into our detailed analysis for more insights into these market movements.

Dollar Index Finds Support as Markets Adjust to Economic Signals

The dollar index stabilized around 102.8 on Tuesday after losing as much as 2.1% over the previous two sessions, as investors continued to evaluate the potential for a US recession. A weak jobs report released on Friday increased worries that the Federal Reserve may be too late in preventing an economic downturn. However, analysts cautioned that concerns about a recession may be exaggerated and that the unwinding of the yen carry trade will stabilize. Markets reacted by pricing in over 100 basis points of total easing from the Fed this year, with expectations for a larger 50 basis point rate cut in September. San Francisco Fed President Mary Daly noted that the labor market is slowing and inflation is moving toward the 2% target. Meanwhile, the latest US ISM manufacturing PMI indicated an unexpected contraction, while the Services PMI showed a stronger-than-expected rebound.

Yen Weakens Amid Slowing Carry Trade Unwind and Diverging US-Japan Policies

The Japanese yen slipped toward 145 per dollar, retreating from seven-month highs as the unwinding of popular carry trades slowed and investors continued to evaluate the diverging monetary policies between Japan and the US. Earlier this week, the yen rallied to a peak of 141.69 per dollar amid increasing expectations that the Bank of Japan (BOJ) would raise interest rates further in the coming months while growing fears of a US recession prompted markets to price in larger rate cuts by the Federal Reserve. Last week, the BOJ raised its policy rate to 0.25% and indicated a willingness to hike rates further if the economy remains robust. Markets are anticipating two more rate increases this fiscal year, which ends in March 2025, with the next hike expected in December. The central bank also announced plans to halve its monthly bond purchases over the next couple of years. Additionally, data revealed that Japanese authorities spent 5.53 trillion yen to support the currency through intervention in July.

The first resistance level is at 146.00. If this level is surpassed, the next targets will be 147.00 and 148.00. On the downside, the initial support is at 143.60; if this level is breached, the next support levels to watch will be 141.70 and 141.00.

Gold Holds Steady Amid Recession Fears and Safe-Haven Demand

Gold steadied around $2,410 per ounce on Tuesday after a decline of over 1% in the previous session. The metal’s upside bias remained intact, buoyed by its safe-haven appeal as markets grew more risk-averse. Investors continued to assess the likelihood of a US recession in light of weak economic data and disappointing corporate earnings, which heightened expectations for multiple rate cuts by the Federal Reserve. Markets are now pricing in over 100 basis points of total easing this year, with a significant 50 basis point rate cut anticipated in September. Additionally, San Francisco Fed President Mary Daly stated on Monday that she was open to cutting interest rates if necessary and highlighted the importance of a proactive policy approach. Meanwhile, ongoing tensions in the Middle East continued to enhance gold’s appeal as a safe haven.

After the yesterday’s sell off , gold starts the day in a sideways trend, with the first support level at 2,390. If this level is breached, the next supports to watch will be 2,375 and 2,355. On the upside, the initial resistance is at 2,415; if this level is surpassed, the next targets will be 2,430 and 2,450.

UK Retail Sales Recover, Driven by Consumer Spending on Fashion and Beauty

Retail sales in the United Kingdom rose by 0.3% on a like-for-like basis in July 2024 compared to a year earlier, rebounding from a 0.5% decline in June and aligning with market forecasts. This return to growth was primarily driven by increased consumer purchases of clothing and beauty products in anticipation of the holidays. Over the three months leading up to July, food sales rose by 2.6% year-on-year, while sales of non-food items fell by 1.7%. This latest improvement also coincided with the Bank of England beginning to cut interest rates, which has fueled expectations of stronger underlying spending growth in the second half of the year.

For GBP/USD, the initial support lies at 1.2735, followed by 1.2660 and 1.2600 below. On the upside, the first resistance is at 1.2790, with subsequent levels at 1.2830 and 1.2870 if the pair breaks above this resistance.