Macro economics

Analytics on 27/07/2020. Gold derives support from the risk-off tone and a weaker dollar

European stock markets are trading lower on Monday amid rising diplomatic tensions between the US and China. Washington ordered the closure of the Chinese consulate in Houston. In compliance with a retaliatory measure from Beijing, the U.S. consulate in Chengdu shut down on today. Meanwhile, the UK imposed a two-week coronavirus quarantine on travelers returning from Spain and said it was watching cases in Germany and France closely. As a result of this move, London-listed airlines and tour stocks declined sharply today.

On the data front, the headline German IFO business climate index came in at 90.5 in July, beating the consensus estimates pointing to a reading of 89.3. The current economic assessment arrived at 84.5 points as compared to last month's 81.3 and 85.0 anticipated. The IFO expectations index came in at 97.0 for July, up from the previous month’s 91.4 reading and better than the market expectations of 93.7. In general, the results were fairly positive but the release did little to eliminate the prevailing weakness in the regional markets.

Against this backdrop, the UK’s FTSE 100 sheds 0.24 percent to 6,109. Italy’s FTSE MIB edges lower by 0.43 percent to 19,998, France’s CAC 40 loses 0.19 percent to 4,947, while German DAX 30 rises by 0.26 percent to 12,871. U.S. stock index futures climbed marginally in a muted start to the trading week ahead of the Fed’s two-day policy meeting.

Meanwhile, the greenback keeps bleeding across the board on Monday. As such, EURUSD extended nearly two-year highs to the 1.1730 area and looks ready to add to gains in the short term despite some overbought signals. Apart from a weaker dollar, the common currency derives support from a more stable environment in Europe and better-than-expected economic data out of the Eurozone. Furthermore, should the Federal Reserve express a dovish tone and cut its economic projections during the upcoming meeting, EURUSD will rise further this week.

In other markets, gold prices rose to fresh record highs around $1,945 to start the week. Now, when the $1,900 handle turned into support, the bulls could target the $2,000 mark in the weeks to come. The precious metal is supported by safe-haven demand amid worsening US-China tensions, uncertainty around fiscal stimulus in the United States, and rising coronavirus cases in several countries. The additional bullish driver for the bullion is widespread dollar weakness.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
United Kingdom Repo Rate 0,10 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 0,25 %
Australia Cash Rate 0,25 %
Canada Overnight Rate Target 0,25 %
All rates

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