US Open Note – Dollar cools off, euro turns up and gold back to $1,800



Chinese data drives dollar higher

In the wake of disappointing Chinese economic statistics, which sent the British pound and the Australian dollar down, the US dollar held onto its two-decade high earlier in the day. The surge in the dollar has been fuelled by China's long-term economic lockdowns, which have contributed together with other uncertainties to an almost 10% rise in the dollar index since the beginning of 2022. In April, China's retail and industrial activity declined substantially due to widespread Covid-19 lockdowns, which kept workers and consumers at home.

After six straight weeks of advances, the dollar index is moving slightly higher today, testing 104.45, while dollar/yen is flirting with the 129.40 level. US futures are suggesting a negative open after a strong bullish day on Friday.

Euro rebounds off 5-year low

The euro is trading at $1.0425, a little higher from the previous day's more-than-five-year low of $1.0354, its lowest since early 2017. European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Monday that the weak euro in currency markets could endanger its efforts to steer inflation towards its aim.

The European Commission lowered its Eurozone growth predictions. This year's GDP growth is expected to decrease from 4.0% to 2.7%, and next year's GDP growth is expected to fall from 2.7% in the base case scenario to 6.1% and 2.7% in the basic case scenario.

ECB monetary policy tightening expectations remain low. Lift-off is scheduled for July 21st, which means the conclusion of QE on June 9 has already been completely priced in. Since last week there was only 140 bp of tightening over the next 12 months, followed by another 45 bp of tightening over the next 12 months, which would see the deposit rate peak at 1.35%, compared to 1.75% at the beginning of this week.

Pound awaits plenty of data this week; Turkish lira plunges

Currently, the pound is rising with weak momentum above the two-year low of $1.2150 as investors lowered their hopes for an interest rate hike from the Bank of England this year. Numerous data releases are coming out this week from the UK, such as employment on Tuesday and CPI inflation and retail sales on Wednesday and Friday respectively.

Today, was the eighth day in a row that the Turkish lira fell against the dollar. It declined near $15.65 against the dollar, which is close to the record low it hit in December after a series of unusual interest rate cuts.

The Ukraine war started to hurt the lira in March, when Western sanctions against Russia caused energy prices to skyrocket. This made Turkey's already high import bill even higher.

Gold back to $1,800

In gold market, the price is tumbling around $1,800/per ounce, drifting beneath the long-term ascending trend line that started from August 2021. Oil prices are heading down too, near $109.20/per barrel, continuing the somewhat upside channel in the short-term.

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