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05 August 21

Dollar Edges Higher on Hawkish Fed Comments; Labor Data Eyed

The dollar edged higher in early European trading Thursday, after hawkish comments from the Federal Reserve prompted traders to price in an earlier tightening of monetary policy.

At 1:55 AM ET (0555 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 92.302, pulling away from the one month low of 91.775 seen last week.

USD/JPY rose 0.2% to 109.66, EUR/USD traded 0.1% higher at 1.1839, and the risk-sensitive AUD/USD rose 0.2% to 0.7397, boosted by Australian trade data released earlier in the day which saw exports rising 4% month-on-month in June.

The dollar has been in a state of flux over the last couple of months, first rising after the June meeting of the Federal Reserve saw several members bring forward their timetable for interest rate hikes before slipping back after Chairman Jerome Powell stated last week that interest rate increases were still in the distance.

The currency took another turn after Fed Vice Chair Richard Clarida, usually seen as something of a dove, said Wednesday that conditions for an interest rate hike could be met in late 2022, setting the stage for a move in early 2023. Alongside three of his colleagues, Clarida also hinted that asset tapering could begin later in 2021 or early 2022.

Gold Little Changed as Fed Lays Down Hawkish Tone

Gold was little changed on Thursday morning in Asia, as investors digested remarks from a top U.S. Federal Reserve official that indicated the central bank could begin asset tapering sooner than expected.

Gold futures were trading at $1,813.60 by 1:09 AM ET (5:09 AM GMT).

Gold rose more than 1% during the previous session as the U.S. released some economic data that said ADP non-farm employment change was at 330,000 in July, lower than expected. The data also said the services Purchasing Managers’ Index (PMI) was 59.9, while the Institute of Supply Management (ISM) non-manufacturing employment was at 53.8 and the ISM non-manufacturing PMI was at 64.1.

Investors now look to Friday’s U.S. jobs report, including non-farm payrolls, to gauge the Fed’s next move.

In Asia Pacific, Australian trade data for June, released earlier in the day, said exports rose 4% month-on-month, imports grew 1% month-on-month and the trade balance stood at AUD10.496 billion.

The yellow metal gave up most of its overnight gains, however, after Fed Vice Chair Richard Clarida suggested that conditions for interest rates hikes could be met by the end of 2022. He also said the Fed could begin asset tapering later in the year, earlier than expected.

Oil prices reverse early gains on virus concerns

Oil prices fell on Thursday wiping out early gains as more countries imposed movement restrictions amid a surge in coronavirus cases and as the U.S. dollar firmed, though tension in the Middle East kept prices from falling further.

Japan was set on Thursday to expand emergency restrictions to more prefectures, while China, the world’s second-largest oil consumer, imposed restrictions in some cities and cancelled flights, threatening fuel demand.

Brent crude oil futures dropped by 39 cents, or 0.6%, to $69.99 a barrel by 0649 GMT, after earlier climbing to a session high of $70.72.

U.S. West Texas Intermediate (WTI) crude futures fell 31 cents, or 0.5%, to $67.84 a barrel. Both benchmarks fell by more than $2 a barrel on Wednesday.

“China is now facing its most challenging COVID-19 crisis since the initial outbreak was brought under control,” analysts from FGE said in a note on Thursday.

“The COVID-19 resurgence and the reimposition of restrictions will have negative repercussions on domestic transport fuel demand in the near term,” they said, adding that FGE expects gasoline demand to average about 80,000 barrels-per-day (bpd) less in August than in July.

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