Written by Gold boosted on several fronts
After finally breaking out of its four-month-old sideways range on Friday, gold ascended to new all-time highs earlier today, hitting an intra-day record of $3,508.50/oz before pulling back as the US dollar strengthened. The key trigger in gold’s latest upswing was Fed Chair Powell’s Jackson Hole speech where he signalled a likely resumption of rate cuts soon, while the recent intensification of fighting between Ukraine and Russia has been underscoring this uptrend.
But geopolitical risks and the growing expectations of a series of Fed rate cuts not just in 2025 but also in 2026 are not the only factors boosting demand for the precious metal. President Trump’s constant interference in Fed policy, undermining the independence of the world’s most important central bank, has also been driving some investors to safety.
There was some relief, though, on Monday, when Treasury Secretary Scott Bessent reiterated the need for the Fed to remain independent, even as he accused it of making “a lot of mistakes” and defended Trump’s decision to dismiss governor Lisa Cook.
Adding to all the uncertainties is the ruling by a US appeals court that most of Trump’s tariffs are illegal, paving the way for a potential battle in the Supreme Court. Whilst markets don’t think that this will deter the President’s tariff agenda, as the Trump administration will likely use different legal routes to implement its trade policy, the ruling nevertheless adds another layer of complication to the already messy trade war.
Stocks nervously await US jobs report
All these uncertainties, however, have taken the shine off the latest hopes of Fed rate cuts in equity markets. Despite the significant de-escalation in trade tensions, the outlook for the global economy remains quite clouded. The risk of stagflation is one that continues to weigh on sentiment, while renewed doubts about the sustainability of the AI frenzy pulled Wall Street lower on Friday, with Nvidia leading the losses.
US markets were closed yesterday but e-mini futures are in the red today, suggesting that a rebound isn’t imminent. It’s notable that the VIX volatility index has been rising for the past three sessions, pointing to growing nervousness in the markets ahead of Friday’s payrolls report.
Another poor NFP print would cement expectations for a September rate cut, but it would also suggest the US economy is slowing fast. But investors will be watching a slew of other releases beforehand to get a better read on the economy, including the ISM manufacturing PMI today, the JOLTS job openings tomorrow, and the ISM services PMI on Thursday.
As Wall Street takes a breather from record highs, China’s blue-chip CSI-300 index has been surging to three-and-a-half-year highs, lifted by domestic AI stocks, which are increasingly seen as a threat to the dominance of US tech giants.
Dollar attempts a comeback as pound skids
The US dollar is up sharply today against a basket of currencies, rebounding from yesterday’s one-month lows. Some lingering doubts about how aggressively the Fed will be able to slash rates, given that inflationary pressures in the United States are far from contained, seem to be keeping the bears at bay.
But it is mainly weakness in other currencies that’s benefiting the greenback amid a jump on government bond yields globally. Although US yields are also up on Tuesday, US Treasuries are not seen as the weakest link, as investors are most worried about UK and French borrowing right now.
The yield on 30-year gilts has jumped to the highest since 1998 following UK Prime Minister Starmer’s minor reshuffle of his ministers yesterday that did little to restore confidence in the government’s economic credibility. Instead, fresh questions have been raised about whether Starmer will replace Rachel Reeves as finance minister with someone who is less committed to tackling the country’s large fiscal hole.
The pound is plummeting as a result, falling more than 100 pips against the dollar and briefly tumbling below $1.34.
Euro and yen struggle too
The euro is under pressure too, although not as much, as French debt is also under scrutiny. France’s prime minister, Francois Bayrou, began talks with opposition parties yesterday to win backing for his proposed budget cuts of €43.8 billion. A confidence vote is expected next week, which, should he lose, could set the stage for a snap election.
The euro may be drawing some support from stronger-than-expected flash CPI numbers out of the Eurozone, which bolster the case for the ECB to stay on pause.
The safe-haven yen isn’t faring any better against the dollar, as Bank of Japan policymakers are still sounding cautious about the likelihood of further rate hikes.
Oil futures are surprise gainers amid the broader risk-off mood as supply concerns grow over the possibility of new US sanctions on Russian oil exports and energy facilities being targeted by both Russian and Ukrainian forces.
By XM.com
