The currency and commodities markets presented a mixed picture on Tuesday, as the EUR/USD pair held steady near the 1.1550 mark following the release of notable U.S. economic data. At the same time, the GBP/USD currency pair pulled back below the 1.3550 mark, a reaction to the dollar’s moderate strength. Metals Gold traded under $3,400 per ounce for the first time in almost two years. Traders are clearly skittish going into Federal Reserve meetings, showing confusion and unease in the market.
In Tuesday’s American session, the EUR/USD exchange rate remained relatively stable near the 1.1550 level. This stability was a sign of a hopeful equilibrium in the face of increasingly mixed economic indicators. Market watchers eagerly scoured the most recent U.S. prints for clues. They were right to be worried about the industrial production numbers, which showed a contraction.
The GBP/USD currency pair came under pressure and settled somewhat under 1.3550 on the day’s second half. Perhaps surprisingly, a relatively modest appreciation of the U.S. dollar is at the center of this shift. It’s been a disruptive force on all currency pairs, as well.
Economic Data Influences Currency Movements
Those currency fluctuations were directly related to the new economic data released last week that showed a mixed bag across all major economic indicators. Industrial production dropped 0.2% in May, the third decrease in the first five months of this year. This decline led to alarm bells ringing about the state of the manufacturing industry — a key driver of economic prosperity.
Mining output, on a nationwide basis, recorded an even smaller gain of 0.1%, underscoring resilience in that segment. It’s important to remember that overall industrial production is still pretty weak, up just 0.6% from a year ago. Even for manufacturing, the biggest category, it was discouragingly low growth — just 0.1% in the month of May. This comes after a larger 0.5% drop the month prior.
“We expect manufacturing to continue to tread water in the months ahead.” – Economic Analyst
The story wasn’t all bad. Certain sectors of manufacturing experienced growth. Motor vehicles & parts in particular had a very strong increase of 4.9%, indicating areas of strength in specific industries. Non-durable manufacturing made some gains, particularly in textiles, apparel and paper which all saw small increases.
Gold Market Remains Cautious Ahead of Fed Decisions
Since Friday’s American session, gold prices in the commodities market have increased somewhat. In fact, they managed to keep them in a narrow band, never going over $3,400. Traders seemed to be on the sidelines looking for more clarity on Fed guidance on monetary policy.
The reluctance among traders can be attributed to concerns over potential changes in interest rates and their implications for inflation and economic growth. With more uncertainty on the horizon, many investors are taking a wait-and-see stance before getting aggressive on large trades.
“If you’re unsure about the risks of a fast market and how they may affect a particular trade you’ve been considering, you may want to place your trade through a phone agent at 1-800-TRADERS.” – Trading Expert
This nervous sentiment has added to volatility in the gold market, as investors on both sides consider their moves with changing economic signals.
Market Outlook and Projections
As federal analysts continue to assess these unique market conditions. Their outlook calls for sustained volatility in both currency and commodity markets moving forward. The EUR/USD cross is drifting in the 1.1550 neighborhood, suggesting a pause and a waiting game. As any turn in the U.S. economic data reminds us, sentiment can turn on a dime.
GBP/USD trading below 1.3550 could indicate broader trends affecting not just the British pound but investor confidence in riskier assets. Our analysts warn of the dangers of sustained USD strength pushing down on other currencies even harder.
So, too, do economic analysts obsessed with the health of the beleaguered U.S. manufacturing sector. They forecast what will happen by gaming out the results using industrial production data. With growth stalling and only modest gains in specific areas such as motor vehicle production, there is a call for close monitoring of trends.