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Dollar Drops as US Yields Tumble

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USD

The dollar index, which measures the greenback against a basket of major currencies dropped to a low of 97.09 weighed down by the drop in US Treasury yields on renewed trade concerns between China and the United States. The US President Donald Trump stated that the trade talks between China and the United States have a long way to go, sparking investors’ fears about the effect of the ongoing trade war on the economic outlook. The Federal Reserve officials affirmed recently that the trade disputes are increasing the downside risks to the economy and forcing the Fed to follow a more accommodative monetary policy stance. The US 10-year yields tumbled to a one-week low of 2.033%, and the chances of a 50-basis point rate-cut rose to 38% as per the CME Fed Watch tool. The USDJPY tumbled to a low of 107.60, the EURUSD rose to 1.1244 on stronger inflation figures and a weaker dollar, and the GBPUSD bounced off a twenty-seven-month low of $1.2380 to trade higher at $1.2451.

Metals

Gold prices soared as the dollar declined along with US Treasury yields amid increased chances of aggressive easing by the Federal Reserve. The bank is widely expected to cut interest rate by 25 basis points in July, but the chances of a bigger reduction in rates are rising on renewed trade concerns and weaker economic data. The price of a gold ounce climbed to a  two-week high of $1430, the silver ounce raced higher to $16.10, the highest since late February, and palladium found support at a three-week low of $1507 and ascended to $1551.

Oil

Oil prices extended losses despite a drop in US stockpiles. The US Energy Information Administration reported that the weekly US crude oil inventories dropped by 3.116 million barrels last week. However, the prices were weighed down by fresh concerns over trade between China and the United States after Trump stated that the trade talks have a long way to go. Moreover, the geopolitical tensions between Iran and the United States have eased as Trump indicated progress with Iran. The West Texas Intermediate crude futures fell to a two-week low of $56.20, and Brent futures drifted lower to $63.20.

Major Economic Events

GMT Country Event Expectation Previous

8:30

UK

Retail Sales (MoM) (Jun)

-0.3%

-0.5%

12:30

US

Philadelphia Fed Manufacturing Index (Jul)

5.0

0.3

12:30

US

Initial Jobless Claims

216

209


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