- Gold pulls back from one-week highs amid some buying around the dollar.
- Aggressive Fed expectations, high US bond yields and upbeat US data support the dollar.
- Recession fears dampen markets’ initial optimism and offer some support.
The Prayed trims part of its intraday gains to the one-week highs hit this Thursday and pulls back below the $1,760 area during the early American session. The US dollar rebounds from the weekly low and turns out to be a key factor acting as a headwind for dollar-denominated commodities.
High yields on US Treasuries, bolstered by Fed expectations, along with mostly upbeat US macroeconomic releases, help the dollar curb its intraday slide and attract some buying at lower levels. Lower. The preliminary report of US GDP, the second reading, showed that the world’s largest economy shrank at an annualized rate of 0.6% during the second quarter, compared to the 0.9% decline previously estimated. In addition, weekly jobless claims unexpectedly fell to 243,000 in the week ending August 19, from a downwardly revised 245,000 in the previous week.
The data reaffirms bets on a further tightening of US central bank policy, although traders prefer to wait for a tougher message from Fed Chairman Jerome Powell at the Jackson Hole symposium on Friday. Still, Fed fund futures traders are pricing in a 61% chance that the Fed will raise rates another 75 basis points (bps) at its September meeting, and a 39% chance of a increase of 50 basis points, according to Reuters. Meanwhile, initial optimism in equity markets, led by China’s stimulus measures, is running out of steam amid concerns of a deeper global economic downturn.
It is worth mentioning that China’s State Council outlined a 19-point policy package while announcing CNY 1 trillion ($146 billion) in economic stimulus measures to stimulate growth affected by the covacha closures and the crisis. of the real estate market, according to Bloomberg. In addition, Li Zhong, vice minister of the Ministry of Human Resources and Social Security, said Thursday that China will focus on expanding employment and promoting fiscal, monetary and industrial policies to support labor market stabilization. Market participants, however, remain skeptical of headwinds stemming from further COVID-19 lockdowns in China and the collapse of the real estate sector.
This, in turn, tempers investors’ appetite for perceived riskier assets, reflected in an intraday pullback in equity markets and continues to provide some support for safe haven gold. However, XAU/USD has so far managed to stay in positive territory for the third day in a row, although the mixed fundamental backdrop warrants some caution before positioning for any further appreciation moves.
Technical levels to watch
Source: Fx Street
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