The dollar weakened against the euro on Monday as traders scaled back expectations of further U.S. interest rate hikes following weaker economic data, while gold prices rose, supported by the weaker U.S. currency and diminishing rate-hike expectations. Investors also continued to monitor geopolitical tensions in the Middle East.
The euro rose 0.10% to around $1.1583, its highest level in two months, while the dollar fell 0.44% against the Swiss franc to 0.8098 francs.
Kit Juckes, chief foreign exchange strategist at Societe Generale, said traders were moving to sell the dollar amid concerns over the pace of U.S. economic growth and the interest-rate path the Federal Reserve may pursue following disappointing economic data.
Data released last week showed that U.S. retail sales fell in July for the first time in nine months, while job losses increased unexpectedly last month and inflation readings remained moderate. The figures strengthened expectations that the U.S. central bank could adopt a more accommodative stance on interest rates.
According to CME Group’s FedWatch tool, the probability of a Federal Reserve rate hike at its September meeting fell to 30.6%, from 52.2% a week earlier. Other market data put the probability of a September rate hike at 33%, down from 51.2% a month earlier.
The dollar index, which measures the U.S. currency against a basket of major currencies, fell to its lowest level since early June before paring some losses to trade at 99.53.
In currency markets, the yen rose 0.01% to 159.36 per dollar, continuing its recovery from losses following intervention by Japanese authorities to support the currency, despite largely shrugging off data showing weaker-than-expected Japanese economic growth.
Joint efforts by the United States and Japan to curb the yen’s decline kept currency markets on alert, while attention shifted to the possibility of the Bank of Japan raising interest rates soon. Japanese and U.S. authorities intervened in currency markets in late July to stem the yen’s decline.
In China, data released Monday showed a slowdown in industrial production growth, while July retail sales growth came in below expectations. The dollar fell 0.05% to 6.741 yuan in offshore trading.
Meanwhile, the Australian dollar rose 0.52% to $0.7118.
Gold Benefits from Weaker Dollar and Fading Rate-Hike Expectations
Gold prices continued to rise on Monday, benefiting from the weaker dollar and fading expectations of U.S. interest rate hikes, while investors also watched developments in geopolitical tensions in the Middle East.
By 1555 GMT, spot gold was up 1.2% at $4,426.52 an ounce, while U.S. gold futures for December delivery rose 1.1% to $4,484.10 an ounce.
Bart Melek, head of commodity strategies at TD Securities, said gold was being supported by expectations that the economy could move toward a stagflationary environment, amid a slowing labor market and expectations that the Federal Reserve may adopt a more accommodative stance toward current inflation levels.
He added that the dollar’s decline toward the 100 level, which is considered psychologically significant, was one of the key factors supporting gold prices.
The dollar fell to its lowest level in more than two months, making the precious metal less expensive for holders of other currencies. Markets also reduced their expectations for interest rate hikes following last week’s weaker-than-expected U.S. jobs report and modest consumer inflation data.
Gold prices typically benefit from lower interest rates because the precious metal does not generate interest income.
On the geopolitical front, a senior Iranian official told Reuters that Tehran would escalate tensions in the Strait of Hormuz and across the region if diplomatic efforts with the United States fail, signaling a shift toward a more aggressive approach.
In other precious metals markets, spot silver rose 2.8% to $66.44 an ounce, platinum gained 2% to $1,783, while palladium climbed 1.5% to $1,332.49.
Reuters
