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Tuesday witnessed the biggest US dollar’s rally since 2020 on the back of fresh economic data released by the US Labour Department highlighting CPI that unexpectedly rose in August. The dollar index was up 1.5% at 109.85 in its biggest one-day percentage gain since March 2020.
The American currency, however, is still below last week’s two-decade peak recorded at 110.79. The yield on the US 10-year Treasury note rallied to 3.412%, while the yield on the 2-year note is now at 3.76% after stronger-than-expected US inflation data boosted investors’ expectations on the Fed’s next move and whether policymakers will need to stay aggressive in raising interest rates.
At the time of writing, gold trades at $1697.90 per ounce versus the previous $1701.09 on Monday’s close. Gold price seems pressured around $1,700 as bears take a breather after the biggest daily slump in two weeks, thanks to US inflation. It is noteworthy that there is lack of major catalyst to help gold regain momentum.
Economic Data
The Consumer Price Index increased 0.1% in August, but the modest gain for the headline index masked what was a disappointing report. Gasoline prices fell 10.6% in the month, helping to keep overall inflation in check, but beyond energy goods there were not many encouraging takeaways.
Excluding food and energy prices, core inflation increased 0.6%, above consensus of 0.3%. Core goods inflation remained strong and broad-based despite indications that supply chains are functioning more smoothly and inventory stockpiles are building. Core services inflation also remained hot, increasing 0.6% for August.
Other Developments
The oil market is in a “state of schizophrenia” and increasingly disconnected from signs of robust crude demand, OPEC said Tuesday, reiterating earlier hints that it would act to support prices that have continued to tumble despite cuts to the cartel’s output.
OPEC on Tuesday maintained its forecast for strong global oil demand growth in 2022 and 2023, based on indications that major economies are doing better than expected despite unfavorable factors such as rising inflation.
The monthly OPEC report showed that the organization’s production recorded a significant increase in August, rising by 618,000 barrels per day to reach 29.65 million barrels per day, although much of this is due to the recovery of Libyan supplies from the production interruption.
US President Joe Biden’s chip plans to increase difficulties that could encounter China’s economy are ongoing and even fuel the Sino-American trade war. Russia also is expected to hit hard after retreating from some parts of Ukraine. These geopolitical developments also weighed on the market sentiment and particularly; gold price.
The Euro fell on the stronger US dollar to the 0.9966 low after hitting a nearly one-month high of 1.0198 in the previous session versus the dollar on the back of hawkish remarks by ECB officials.
The AUD/USD dropped more than 2%. USD/JPY rallied to a high of 144.68 putting it back on track for a fresh bull cycle high if the bulls stay the course for the day ahead.
The GBP/USD pair rose to a two-week high after the British jobless rate dropped to its lowest level since 1974, while wages excluding bonuses rose by 5.2%, the highest rate since the three months to August 2021, but the US data whipsawed the price to a low of 1.1490 from 1.1715 the high.
In cryptocurrencies, bitcoin was losing a whopping 12% $20,058.00 in an exaggerated reaction to the bearish price action in the general markets, particularly equities; which saw the S&P 500 dive about 4%.
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