Global Economic Shifts Impact Currency Movements and Gold Prices (08.02.2024)

The dollar holds its gains against the pound and euro as weak US economic data raises concerns. The EUR/USD tests support at 1.0760. The yen strengthens on safe-haven demand amid US slowdown fears, with the USD/JPY near 149.5. Gold surges to $2,450 per ounce, driven by Middle East tensions and potential Federal Reserve rate cuts. The GBP/USD faces volatility following the Bank of England's rate cut to 5%. Dive into our analysis for a closer look at these market movements.

Dollar Holds Gains Against Pound and Euro After Central Bank Moves

The dollar index held steady around 104.4 on Friday after rebounding in the previous session, supported by safe-haven demand amid concerns over weak US economic data signaling a potential downturn. Data released on Thursday revealed that US manufacturing activity contracted more than expected in July, with employment falling to levels not seen since 2020. Additionally, jobless claims rose to 249,000, marking the highest level in nearly a year. Investors are now looking forward to the monthly jobs report on Friday for more insights. Meanwhile, the Federal Reserve maintained rates on Wednesday while hinting at a possible reduction in September if inflation continues to decline. Markets have fully priced in a 25 basis point rate cut at the next meeting, with over 70 basis points of total easing anticipated this year. The dollar strengthened significantly against the pound and euro following a rate cut by the Bank of England and dovish comments from an ECB official.

In the pair, the first support level is at 1.0760. If this level is breached, the next supports to watch will be 1.0710 and 1.0660. On the upside, the first resistance is at 1.0810; if this level is surpassed, the next targets will be 1.0840 and 1.0870.

Yen Gains on Safe-Haven Demand Amid US Slowdown Concerns

The Japanese yen traded around 149.5 per dollar, hovering near its strongest levels since mid-March as fears of a US economic slowdown provoked safe-haven buying of the currency. The yen also surged to multi-month highs against the pound and euro following a rate cut by the Bank of England and dovish remarks from an ECB official. Domestically, the Bank of Japan raised its policy rate to a 16-year high of 0.25% and indicated a willingness to increase rates further if the economic situation calls for it. Markets are anticipating two more rate hikes before the end of the fiscal year in March 2025, with the next increase expected in December. Recent data also revealed that Japanese authorities spent 5.53 trillion yen in July to support the currency through intervention. Meanwhile, Japan’s government warned that a weak yen could diminish households’ purchasing power by driving up inflation more than wage growth, underscoring the urgent need for officials to support the currency.

The first resistance level is at 150.00. If this level is surpassed, the next targets will be 151.00 and 152.00. On the downside, the initial support is at 149.00; if this level is breached, the next supports to watch will be 148.60 and 147.00.

Middle East Tensions Rise Gold's Safe-Haven Appeal

Gold rose to around $2,450 per ounce on Friday, nearing record highs and poised for a weekly gain, fueled by recent weak US economic data that increased expectations for Federal Reserve rate cuts. Data released on Thursday indicated that US manufacturing activity contracted more than expected in July, with employment levels reaching lows not seen since 2020. Additionally, jobless claims rose to 249,000, the highest level in nearly a year. Investors are now awaiting the monthly jobs report for further insights later today. Meanwhile, the escalating risk of a broader conflict in the Middle East is rising gold's appeal as a safe haven. Markets are closely monitoring Iran's response to the assassination of Hamas leader Ismail Haniyeh, which followed the killing of Hezbollah's top commander in a Beirut airstrike.

Before the important data releases, gold remains in a sideways trend, with the first support level at 2,435. 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 2,475; if this level is surpassed, the next targets will be 2,500 and 2,550.

Bank of England Cuts Rate to 5% Amid Inflation Concerns

The Bank of England cut its Bank Rate by 25 basis points to 5% during its August meeting, in line with the expectations of a small majority in the market. However, the bank emphasized that it would proceed cautiously with any further loosening of monetary policy until officials are more confident that inflation will remain subdued. This rate cut marks a decrease from 16-year highs that had been maintained for a full year. The decision was described as “finely balanced,” with four members of the Monetary Policy Council choosing to keep borrowing costs unchanged due to the slowdown in UK inflation, which was countered by rising services prices and lingering risks that second-round effects could undermine the central bank's progress. Nonetheless, the Committee expressed its expectation that headline inflation will decline and inflation expectations will converge toward the target. Furthermore, the MPC indicated that a restrictive policy is necessary to bring GDP below potential and to continue softening the labor market, justifying a less restrictive policy stance.

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 1.2785, with subsequent levels at 1.2830 and 1.2870 if the pair breaks above this resistance.