The Federal Reserve “hawk” sound again Gold rises and falls

[Market Review].

The US Dollar Index fell before rising. The US Dollar Index showed a clear V-shaped move and recovered to near 91.8 after hitting an intra-day low of 91.52 early in the US session. Although the new home sales data fell short of expectations; Markit services PMI also dropped to 64.8, but it is still close to the record high. In addition, the manufacturing PMI recorded 62.6, a new record high. The good data made the dollar index bottom out.

At the same time, hawkish statements from Fed officials also supported the dollar. Atlanta Fed President Bostick and Dallas Fed President Kaplan, both expect the Fed to raise interest rates in 2022.

In addition, the Fed’s fixed-rate reverse repo usage exceeded $800 billion. The Fed continues to recycle excess market liquidity through reverse repos, and the dollar will continue to be supported under the marginal tightening of liquidity.

Gold is in an inverted V trend. Next, let’s focus on gold. Gold prices were in a state of narrow oscillation for most of the Asian and European sessions. The U.S. session began with a short pull up to an intra-day high of $1794, but as the dollar rebounded, gold prices continued to move lower, falling back $20 to around $1775.

Silver surged higher and retreated. Silver moved similarly to gold, but retraced less in the U.S. session, eventually closing slightly higher at $25.85 per ounce.

The euro came under slight pressure. In non-U.S. currencies, the euro also rose and then fell against the dollar, hitting an intra-day high of 1.1970 and now running near 1.1920. A survey showed that the euro was boosted by rapid corporate growth in the eurozone in June as more blockade measures were eased and pent-up demand was released. However, against the backdrop of renewed dollar strength, the euro’s gains were limited.

The British pound rose and then fell. Let’s look at the British pound again. The pound also rose and then fell against the dollar, turning lower after breaking the 1.40 handle and giving back some of its gains. Investors are waiting for tonight’s Bank of England interest rate resolution.

U.S. oil is in a narrow range. Finally, to focus on the oil market. At the beginning of the U.S. session, U.S. oil was once at $74, renewing a new high since October 2018, but as the dollar rallied, oil prices gave back most of their gains, and a big drop of more than 7 million barrels in EIA inventories failed to support oil prices, which eventually returned to near $73. In addition to a stronger dollar, the news that the Iran deal is reportedly close to being finalized, and that OPEC+ is considering raising its daily production by 500,000 barrels in August at next week’s meeting, also weighed on oil prices.

[Risk Warning].

Gold prices will reach 1800 in the short term but gains may be limited by PCE

Earlier, Federal Reserve Chairman Powell testified before Congress with significantly more cautious language. This made the dollar once plunged, and suppressed market expectations of the Fed rate hikes, easing the downward pressure on gold prices. Some analysts believe that gold prices may rally to $1,800 in the short term, but its uptrend may be limited by Friday’s PCE data.

Tightening crude oil supply Oil prices may rise to 100

Institutional analysis says India has been the weak link in oil demand due to a second wave of deadly outbreaks. However, fuel sales rebounded in the first half of June, preliminary evidence that India’s energy consumption is improving. Calls for a supply shortfall have also been strengthening recently. Bullish signs abound, from falling inventories to constrained U.S. output. The long-term outlook for oil prices is also improving due to concerns that underinvestment in oil projects will reduce future supply. As a result, it is not impossible for oil prices to reach $100.

The Bank of England may release tightening signals, the pound and the U.S. back on the 1.42

Credit Suisse analysts pointed out that the Bank of England in today’s policy meeting there is a fair chance that it will follow up on last week’s Fed policy wording, revealing to the market the future outlook for policy tightening. The Bank of England is expected to raise interest rates first by 15 basis points in mid-2022, followed by a 50 basis point hike by the end of 2023. The timing of the start of this tightening cycle will be even earlier than the Fed’s action. This will bring great psychological stimulation to investors. In this condition, the pound will gradually return to the 1.42 mark against the dollar after the market, while the euro will fall to a low of 0.84 against the pound.

Key Forecast

19:00 Bank of England may release the signal to continue to reduce bond purchases

First, to focus on the Bank of England will hold an interest rate resolution. Like other central banks, the Bank of England eased monetary policy at the beginning of the epidemic last year, dropping interest rates to a record low of 0.1% and restarting its quantitative easing program.

Over the past few months, the BoE has slowed the pace of asset purchases and hinted at further tapering of purchases. The recent recovery in the UK economy has been quite pronounced, with the monthly GDP rate showing a massive recovery in economic activity following the easing of epidemic restrictions. Wells Fargo expects the Bank of England to provide an update on the progress of the economic recovery, as well as the latest views of the members on inflation. Whether the rise in prices is temporary or material will require additional attention. The BoE is likely to signal that the scale of asset purchases will be cut further in the coming months. And Wells Fargo believes that a new round of cuts will begin after the August meeting.

Also, according to a Reuters poll, 67 analysts surveyed all expect that the Monetary Policy Committee will not adjust interest rates; median forecasts suggest that the BoE will not raise rates until 2023, but with increased inflationary pressures and improved growth prospects, more analysts expect that the BoE will act sooner.

20:30 U.S. initial claims expected to decrease

Next, take a look at the initial jobless claims that will be released in the US. Last week’s release saw an unexpected rise in the figure, which was recorded at 412,000. Agencies commented that last week’s US initial jobless claims, the first time in more than a month, recorded an increase, but layoffs have eased amid a reopening economy and a shortage of people willing to work. The U.S. economy is facing a labor shortage, despite the fact that current jobs are still 7.6 million below the peak in February 2020.

Currently, the market expects that the number of initial jobless claims in the U.S. for the week to June 19 will be 380,000. If the published value is much higher than expected, the dollar index may come under pressure; conversely, if the published value is less than expected, the dollar index may strengthen.

The market generally expects that the number of initial jobless claims will decrease, which will have some support for the dollar index.

20:30 U.S. first quarter GDP final value is hardly a big change

At the same time, the U.S. will release the first quarter GDP data. Last year’s final GDP for the fourth quarter was recorded at 4.3%, and the revised GDP for the first quarter released last month was 6.4%. Earlier CNBC commented that U.S. economic activity began the year with a boom as widespread vaccinations and government spending helped the U.S. almost return to the economic levels seen before the outbreak.

Currently, the market expects that the final annualized quarterly value of U.S. real GDP in the first quarter was 6.4%, which may be positive for the dollar if the published value is better than expected; conversely, it will be negative for the dollar.

In addition, the U.S. personal consumption expenditure and the core PCE price index will be released at the same time. If this set of data is overall good, the dollar index is expected to gain support.