The US dollar is on the front foot once again, gaining ground to risk-related currencies such as the euro and the pound during early Friday trading. The strength of the greenback arrives on the back of developments in the bond market, where investors are clearly pricing-in the heightened chances of an inflation spike occurring later in the year. Despite the continued dovish stance from the Fed, with its chairman reiterating on Wednesday that the current accommodative monetary policy and purchase programs will be maintained until the economy has fully recovered, investors don’t seem convinced and appear determined to close any exposure to low yielding debt before inflation starts rising. This dynamic will force greater demand for dollars and could therefore entail further gains for the greenback.
The commodity sector started the final trading session of the week in dark red with surging US yields worrying investors. Commodities, initially seen as a hedge to the potential return of inflation, are now being sold with copper slowing down and silver losing more than 2%. Gold hasn’t been able to benefit from this return of risk-off and is confirming the weakness seen in the last few days. The short-term scenario is now bearish after the long-term bullish rally seen in 2020. Bullion has failed to hold $1,800 and has now broken the support at $1,775, opening space for further declines. A strong greenback could be detrimental for gold as investors are switching back to bonds in the search for yields. Only a solid recovery above $1,775 would be positive, opening path for a new attempt to jump to $1,800, but the short term scenario remains dangerous for bullion.
Carlo Alberto De Casa – Chief analyst, ActivTrades
Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
