USD up, gold price down as central bankers say more rate rises to come

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After three days of central bank speeches at the ECB forum in Sintra, the market agrees that rates have not yet peaked, and cuts won't come for some time.

 Jeremy Naylor | Analyst, London | Publication date: Thursday 29 June 2023 

IGTV’s Jeremy Naylor looks across some of the commentary from Powell, Lagarde and Bailey. This has driven the US dollar to a two-week high and sent the price of gold down.

(Video Transcript)

ECB Forum

After three days of speeches and commentary from the Portuguese Resort in Sintra for the European Central Bank (ECB) Forum, one big theme has emerged, and that is we should expect more interest rate rises to come across the board.

Let's take a look at some of the commentary that we've seen for Jerome Powell: policy hasn't been restrictive enough for long enough.

Meanwhile, the European Central Bank Chief Christine Lagarde said it's not seeing enough tangible evidence of the fact that underlying inflation, particularly domestic prices are stabilising and moving down, and Andrew Bailey was somewhat more cautious. The Bank of England (BoE) governor said the bank would do what is necessary, but it remained to be seen if market bets would prove correct. He said they've got a number of further increases priced in for us, but he said my response would be to that. Well, let's wait and see.

One thing that the Fed, Bank of England and the European Central Bank agree is that recession is not on the cards.

FX markets

Let's take a look at what's been happening on the foreign exchange markets as a result of all this. It's broadly been positive over the last three or four days for the dollar basket. And you can see on this chart here with just about the hundred period moving average, that blue line there at 10275.

And this means that we've got money coming out of other currencies and you can see this EUR/USD trade, secondhand row of losses at the moment for the euro/dollar down at 10896. It hasn't broken like we've seen the dollar against sterling.

Yesterday's big losses broke us down below this line of price support at 12679, and we're picking up on that negative trade today down at 12631. So if you're short on this, the stop goes above that prior line of support, now resistance. So your stop would be at around about the 127 level with a, you'd have taken this down further if you think that it's not just the Bank of England, but it's the Fed also raising interest rates.

But the one runaway trade has been this Japanese yen. It's a weakening yen story right across the board. There's still no evidence that the Bank of Japan (BoJ) is going to be raising interest rates anytime soon. So, with the Fed still moving up in terms of restrictive monetary policy, you've got money coming out of the yen, the dollar now trading there again at levels not seen since the 10th of November, 2022, 14462.

It's just a question of what the Bank of Japan is going to do, and the authorities are going to try and stem some of this weakness in the Japanese yen.

Gold

So the other trade out of all this is what's going on with the price of gold, as we see money going into the dollar, dollar price, commodities suffering as a result. And we've got a print now down here below that prior line of support at 1910, which you've been watching on the Early Morning Call. And my next price target is now down here at 1870 to the red line, which is a 200 period moving average at 1858. And that's the next sort of area of support to watch out for for the price of gold.

And if you're short on this, your stock goes above the 1950 level with a view to taking that further on down.

So, gold suffering at the hands of the stronger dollar.

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BOJ  versus the rest 

 

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As far as $USDJPY is concerned, the move up made sense in my opinion, but just failed to reach that daily order block

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US dollar - monthly