On Wednesday, in the American trading session, gold prices were between $3,300 and $3,500 which was a very strong headwind. The precious metal had a tough time enticing the markets. This drop was especially notable as US–China tensions appeared to be easing. This new geopolitical sentiment drove investors’ attention from the traditional safe-haven asset such as gold.
The U.S. Dollar, which had a strong day that same day, was supported by a strong Personal Consumption Expenditures (PCE) inflation report. Secondly, the Gross Domestic Product (GDP) growth reading disappointed after registering a negative growth of -0.3% for the first quarter. Even with that hit, the dollar continued to be incredibly strong and resilient. This resilience indicates that traders have faith in the broader economic picture. Reading the tea leaves, it looks like they’re focusing on inflation data more than GDP.
As the second half of the day unfolded, the EUR/USD currency pair traded under the psychological level of 1.1400. The sharp decline went on, even in the face of soft U.S. GDP data. Even that data was not enough to provide the Euro much support against the Dollar. The EUR/USD could not break to the upside, confirming the overriding impact of the dollar’s strength in currency markets worldwide.
GBP/USD felt negative influences, hovering beneath 1.3350 in Wednesday trading. This pair was no different, moving lower every day this week thanks to a strong U.S. Dollar. This very strong dollar capped any upside for both EUR/USD and GBP/USD. The one-two punch of hawkish inflation data alongside the dollar’s dogged dominance at parity left little room for these cross-currency pairs to bounce back.
According to market analysts, gold’s failure to recapture the $3,300 level provided a clear signal that investor sentiment was shifting. Easing U.S.-China trade tensions helped dim gold’s luster as a safe-haven asset. Whenever there was a hiccup or a whiff of doubt, the investor community pulled back. As investors consider the competing forces of economic recovery and increasing geopolitical risk, gold increasingly seems to have lost its glitter.
The firmer PCE inflation print gave a good underpinning for the U.S. Dollar, enough to eclipse very soft GDP growth data. This opposing phenomenon demonstrates that investors are generally more sensitive to inflation indicators. They look to these balances rather than growth rates when assessing currency strength. In turn, the dollar’s preeminence over the global currency landscape endured.