U.S. Trade Uncertainty Boosts Gold Prices While Dollar Dips
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The US Dollar Index (DXY00) took a dive today, dropping -0.40%, due to uncertainties surrounding US trade policy. President Trump declared that he's currently got no plans to chat with Chinese President Xi Jinping, although he hinted at potential trade deals with select US trading partners within a week. However, the greenback managed to rebound after T-note yields hiked up when the US Apr ISM services index soared more than anticipated.
The unexpected rise of +0.8 in the US Apr ISM services index, from 50.2 to 51.6, left investors pleasantly surprised. Not to mention, the Apr ISM services prices paid sub-index skyrocketed +4.2 to a 2-1/4 year high of 65.1, beating expectations of 61.4.
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The markets recommend a meager 2% probability for a -25 bp rate cut following Wednesday's 2-day FOMC meeting.
The Euro is now up by +0.40% thanks to the dollar's diminished vigor. Today's Eurozone economic updates, such as the May Sentix investor confidence index that rose above expectations, also contributed to the euro's rise. Specifically, the May Sentix investor confidence index climbed +11.4 to -8.1.
Swaps suggest a whopping 95% likelihood of a -25 bp rate cut by the ECB during their June 5 policy meeting.
The yen is on the rise today due to increased safe-haven demand driven by concerns about the ongoing US-China trade war persisting. Higher T-note yields, however, have limited the yen's gains, especially since markets in Japan are shuttered today for Children's Day.
Silver is up +0.75% in July, with June gold climbing +2.46%, as both metals are enjoying a surge in demand. The greenback's weakness and worries about the enduring US-China trade dispute have prompted this trend. Additionally, geopolitical tensions in the Middle East have further stoked safe-haven demand for precious metals, as the Israel-Hamas and US-Houthi disputes continue unabated.
However, higher T-note yields are acting as a moderate restriction on the upside for precious metals prices, while concerns about the US-China trade dispute negatively affecting global economic growth and industrial metals demand are dragging silver prices down.
As of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities discussed within this article. For more information, please refer to our website Disclosure Policy.
Enrichment Insights- Recent positive developments in US-China trade negotiations have resulted in a strong rally for the US Dollar Index, pushing it to its highest level in a month. This upswing is stemming from the reduction of tariffs between the two nations and robust US economic data, leading to increases in T-note yields and strengthening of the dollar. Despite the overall rally, some uncertainty lingers regarding the long-term economic impact of the trade issues.- The strengthening of the dollar against both the Euro and the Japanese yen is being attributed to the improved US macroeconomic environment, resurgent investor confidence, and higher US Treasury yields, which tends to favor the dollar against safe-haven currencies like the yen.- Geopolitical risks in the Middle East, such as the ongoing Israel-Hamas and US-Houthi conflicts, remain a key driver of safe-haven demand for precious metals like gold and silver. However, concerns about the weighing impact of the ongoing US-China trade war on industrial metals demand and global economic growth are placing a potential ceiling on silver prices.
- In light of the surge in T-note yields and strong US economic data, investors are exploring the potential of performing technology-focused investing in light of the strengthened US Dollar Index, as promising opportunities may arise within this context.
- Given the continuing geopolitical tensions in the Middle East and the protracted US-China trade dispute, there's a growing interest in the role of technology in finance, particularly in its ability to mitigate risks and hedge against economic uncertainties by providing innovative investment solutions.
