Thursday was the wildest day of all on the foreign exchange market. The EUR/USD cross-rate drifted down to the bottom of its range. This drop caused the euro to lose more than two-thirds of one percent from that day’s opening offers. The continuing strength of the US dollar has weighed heavily on the euro and caused gold prices to fall considerably, indicating the prevalent negative economic sentiment.
The greenback jumped on reports that the US and UK reached a preliminary agreement to avoid trade hostilities. Investors responded with enthusiasm, pushing up the dollar’s value. This realization added more to the wave of optimism that investors were experiencing, further increasing demand for the Greenback. Consequently, EUR/USD was under downward pressure, providing a classic example of the dollar strength ↔ euro weakness relationship.
The other market barometer, gold prices, moved in accordance with this market dynamic, as they re-entered the market’s selling pressure on Thursday. The rare metal dropped to the bottom of its daily range, approaching $3,300 per troy ounce. The recent strengthening of the US dollar has made gold less desirable as a safe haven investment. With that in mind, perhaps not surprisingly, the demand for gold has nosedived.
The pressure on gold was compounded by widespread strengthening in Treasury yields. As interest rates or yields increase, it makes holding non-yielding assets such as gold less desirable. This change forces value-minded investors to look to interest-earning alternatives as they search for a return. This has more recently drained demand for gold, contributing to the bearish impulse seen on Thursday.
Here’s how market analysts are reading this complicated dynamic. The hawkish dollar backdrop of a strong US dollar and soaring Treasury yields is squeezing the life out of EUR/USD and gold. The recent news again serves to illustrate how important trade deal news and economic data releases have become in moving the markets.