Dollar hits three-week high, gold sinks to year low

Marco Green
July 21, 2018

Traders said sentiment was downbeat as gold prices slipped to their lowest in a year in global markets, as the dollar firmed after Federal Reserve Chairman Jerome Powell's U.S. economic outlook reinforced views that the central bank is on track to steadily hike interest rates, eroding appeal of the precious metal.

The dollar index, tracked against a basket of major currencies, rose 0.47 percent, with the euro down 0.4 percent to $1.1662.

Across the Pond, economic data out of the U.S is limited to June industrial production figures that are forecasted to be Dollar positive, though any moves will likely be on hold as the markets look to FED Chair Powell's first day of testimony to the Senate, where the FED's view that a trade war between the U.S and China would have limited impact on policy will likely be questioned.

The Fed has raised rates twice this year to the current range of 1.75 to 2 percent and has signaled two more rate hikes before the end of the year.

On Tuesday and Wednesday, Powell said in congressional testimony he believed the United States was on course for years more of steady growth, and he carefully played down the risks to the US economy of an escalating trade conflict.

Analysts now see second-quarter S&P 500 earnings growth of 21.2 percent, up from 20.7 percent on July 1. It brushed a 16-day low on Wednesday of $1.1602.

Oil prices rose after United States government data indicated bullish demand for gasoline and distillates, which overshadowed a surprise build in USA crude inventories and U.S. crude oil production's hitting 11 million barrels per day for the first time.

The spread between two-year and 10-year Treasury yields hovered at its tightest level since July 2007, as Powell's comments supported traders' views of further rate increases from the US central bank.

The Chinese yuan rose 0.1 percent to 6.7392 per dollar in offshore trading after falling to a almost one-year low of 6.7580 the previous day.

The weaker rand in turn has the potential to fuel inflation, which in turn could force the South African Reserve Bank to raise interest rates. Powell again tried to avoid criticizing President Donald Trump's get-tough policies while endorsing free trade.

Australian stocks fell 0.5 percent and South Korea's KOSPI was flat.

With no local data today, investors will watch for Australian employment which may show a softer labour market across the Tasman. The greenback also climbed to a one-year peak against the yuan, as trade worries and reports Beijing would boost liquidity in the financial system pressured the Chinese currency.

The pound traded at $1.3023, after hitting a 10-month low of $1.3010 on Wednesday.

Other reports by Click Lancashire

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