Fed Rate Cut Expectations Boost Yen, Pressure Dollar (08.19.2024)

The dollar weakened significantly due to growing expectations of Federal Reserve interest rate cuts, fueled by concerns over the US economy. Conversely, the Japanese yen strengthened as its economy showed resilience. Gold prices remained elevated amidst geopolitical tensions and safe-haven demand. Currency pairs like EUR/USD and GBP/USD exhibited specific technical levels to watch for potential price movements.

Dollar Index Hits 8-Month Low as Fed Rate Cut Expectations Grow

The dollar index marked its lowest level in nearly eight months as it slid to around 102 on Monday. The decline was driven by growing expectations that the Federal Reserve may soon lower borrowing costs to prevent an economic downturn. On Friday, Chicago Fed President Austan Goolsbee highlighted concerns about the US labor market and leading economic indicators, pointing to rising credit card delinquencies. Additionally, weak US housing starts for July added to the negative sentiment. Markets now fully anticipate a 25 basis point rate cut by the Fed in September, with a potential 50 basis point reduction still under consideration. Fed Chair Jerome Powell’s upcoming speech at Jackson Hole, Wyoming, and the latest FOMC minutes later this week are among key events.

The first support level is at 1.1000 for the EUR/USD pair. If this level is breached, the next supports to watch will be 1.0950 and 1.0900. On the upside, the first resistance is at 1.1065; if this level is surpassed, the next targets will be 1.1100 and 1.1150.

Yen Gains Momentum as US Economic Worries Mount

The Japanese yen strengthened past 146 per dollar, reaching its highest level in nearly two weeks as the dollar weakened due to a more dovish Federal Reserve outlook. Chicago Fed President Austan Goolsbee recently expressed worries about the US labor market and economic indicators, noting an increase in overdue credit card payments. In Japan, investors are closely watching domestic data. Machinery orders, a key indicator of capital expenditure, rose 2.1% monthly in June, surpassing the anticipated 1.1% increase. The Japanese economy expanded by 0.8% quarterly in the second quarter, recovering from a 0.6% contraction in the first quarter and exceeding expectations of 0.5%. On an annual basis, GDP grew by 3.1% in Q2, reversing a 2.3% decline in Q1 and outperforming forecasts of 2.1%. Japanese inflation figures later this week will provide further insight into the Bank of Japan’s future monetary policy.

The first resistance level is at 147.30. If this level is surpassed, the next targets will be 149.30 and 151.80. On the downside, the initial support is at 143.80; if this level is breached, the next support to watch will be 141.70 and 140.00.

Gold Prices Await Powell's Speech and FOMC Minutes

Gold prices remained near a record high of $2,500 per ounce on Monday, driven by strong demand for safe-haven assets. The Federal Reserve's policy outlook is being closely analyzed, particularly following recent positive US economic data. This has led to market expectations for a 25 basis point rate cut in September, with a total of 100 basis points of cuts anticipated over the remaining three Fed meetings this year.

US Secretary of State Antony Blinken is in the Middle East to mediate ceasefire talks between Gaza and Israel. However, ongoing strikes from Israel and mixed statements from Hamas and Israel have reduced hopes for a resolution. Meanwhile, tensions are also high between Ukraine and Russia, with Ukrainian forces making advances into Russian territory. Investors are now waiting for Fed Chair Powell’s speech and the latest FOMC minutes later this week for further clarity on monetary policy.

The first support level for gold stands at 2,470. If this level is breached, the next supports to watch will be 2,450 and 2,412. On the upside, the initial resistance is at 2,510; if this level is surpassed, the next targets will be 2,550 and 2,580.

GBP/USD Technical Levels: Support at 1.2920

For GBP/USD, the initial support lies at 1.2920, followed by 1.2860 and 1.2800 below. On the upside, the first resistance is at 1.3000, with subsequent levels at 1.3050 and 1.3100 if the pair breaks above this resistance.