Inflation Data Drives EUR/USD Higher, Yen and Gold Strengthen (08.15.2024)

The dollar remains under pressure around 102.6 as softer US producer inflation data fuels expectations for Fed rate cuts, pushing EUR/USD toward the 1.1065 resistance level. The yen strengthens past 146.5 per dollar amid market uncertainty over BOJ policy and declining business sentiment. Meanwhile, gold holds near record highs at $2,460 per ounce, supported by expectations of a significant Fed rate cut and ongoing geopolitical tensions. The GBP/USD pair declines as UK inflation data increases the likelihood of Bank of England rate cuts. Explore our detailed analysis for a deeper understanding of these market trends.Bottom of Form

EUR/USD Eyes 1.1065 Resistance Amid Dollar Weakness

On Wednesday, the dollar index traded around 102.6, following a 0.5% decline in the previous session. This drop was driven by disappointing US producer price data, which strengthened expectations for Federal Reserve interest rate cuts. Investors are now awaiting the highly anticipated July CPI report for further confirmation that inflation is continuing to moderate. Data released on Tuesday indicated that US producer prices increased by just 0.1% in July from the previous month, falling short of the anticipated 0.2% rise, while core producer prices remained unexpectedly unchanged. The dollar has experienced losses against most major currencies like Euro amid a rally in risk assets.

In the pair, the first support level is at 1.0950. If this level is breached, the next supports to watch will be 1.0900 and 1.0850. 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.

BOJ Policy Uncertainty and Market Instability Weigh on Yen, Testing Key Levels

The Japanese yen strengthened past 146.5 per dollar, recovering from over one-week lows, as the dollar depreciated following unsatisfactory US producer inflation data. This data increased expectations for more substantial Federal Reserve interest rate cuts. The figures also raised hopes that upcoming US consumer inflation reports may show further signs of moderating price growth in the largest economy. Domestically, the Reuters Tankan survey indicated a slight decline in business sentiment among manufacturers in August, attributed to subdued demand from China. Traders continued to evaluate the Bank of Japan's monetary policy stance amid recent market volatility and the unwinding of yen carry trades. A former BOJ official suggested that the central bank may not be able to implement further rate hikes this year due to ongoing financial market instability. Additionally, Prime Minister Fumio Kishida is reported to be stepping down from his position as party leader in September.

The first resistance level is at 148.00. If this level is surpassed, the next targets will be 149.30 and 150.90. On the downside, the initial support is at 145.60; if this level is breached, the next support levels to watch will be 144.00 and 141.70.

Gold Holds Near Record Highs as US Inflation Data Boosts Rate Cut Hopes

Gold prices eased to approximately $2,460 per ounce on Wednesday, and remained near record highs, as softer US inflation data heightened expectations for a more significant Federal Reserve rate cut in September. Annual producer inflation slowed to 2.2% in July, down from 2.7% in June and approaching the Fed’s 2% target. Additionally, gold’s safe-haven appeal continues to support its value amid escalating geopolitical tensions, including potential retaliatory actions by Iran against Israel and Ukraine's actions in Russia. Investors are awaiting the release of US CPI data later in the day for further insights into inflation trends. The CME FedWatch Tool currently indicates a 50% probability of a 50-basis-point rate cut in September. Lower interest rates typically increase the attractiveness of non-interest-bearing assets such as gold.

In gold, the first support level is at 2,450. If this level is breached, the next supports to watch will be 2,430 and 2,412. On the upside, the initial resistance is at 2,475; if this level is surpassed, the next targets will be 2,450 and 2,500.

UK Inflation Data Pushes GBP/USD Lower, Increases Likelihood of Bank of England Rate Cuts

The British pound fell to $1.28, retreating from a three-week high reached earlier in the month, following UK inflation data that heightened expectations for a Bank of England rate cut. Annual inflation came in at 2.2%, matching projections but falling short of prior estimates. Services inflation decreased to 5.2%, its lowest level in two years and below the central bank’s forecast of 5.6%. Core inflation also decelerated more than anticipated. Hence, the probability of a 25 basis point rate cut in September rose to 47% from 36% before the data release. Market participants are now pricing in two additional 25 basis point cuts by year-end. However, recent labor market data revealed unexpected strength: the unemployment rate declined to 4.2% for the three months ending in June, defying expectations of an increase, while wage growth moderated to 5.4% from 5.8%, remaining slightly above the Bank of England’s forecast.

For GBP/USD, the initial support lies at 1.2790, followed by 1.2740 and 1.2700 below. On the upside, the first resistance is at 1.2880, with subsequent levels at 1.2950 and 1.3000 if the pair breaks above this resistance.