Uncertainty ahead of the UK general election and Comey’s testimony in the US Congress on Thursday drove gold to a 7-week high in European trading today, while the US dollar made fresh lows.
The greenback has been under pressure since Friday when a disappointing non-farm payrolls report dampened expectations of a third rate hike by the Fed this year, although markets are still pricing a rate increase at next week’s FOMC meeting. However, worries of an escalating political fallout in the US from James Comey’s upcoming testimony are also weighing on the dollar. The former FBI director is due to appear before the Senate Intelligence Committee on Thursday about his discussions with President Trump regarding dropping the investigation into the ex-National Security Advisor Michael Flynn’s alleged contacts with Russia.
Further exasperating the dollar’s decline today was a plunge in US treasury yields. The yield on 10-year Treasury notes hit the lowest since mid-November on reports that China is readying to increase its holdings of US government bonds. The dollar index touched a fresh 7-month low of 96.53 earlier today before firming to around 96.62 in late European session. Against the yen, the dollar slid 1% to a 6-week low of 109.27 before later recovering slightly to around 109.45. The rebound came after a rise in the JOLTS job openings in May. Job openings in the United States increased to 6.04 million last month from a revised 5.79 million in April.
The pound meanwhile fell back from 1½-week lows, breaching below the 1.29 level against the dollar in afternoon European trading, having earlier hit a session peak of 1.2950 dollars. Britain goes to the polls on Thursday following Theresa May’s call for a snap general election. Sterling has managed to stay resilient despite May’s Conservative party sharply reducing its lead over Labour and two major terror attacks in the past two weeks. However, election jitters may finally be hitting traders as the Labour party continues to see rising support with just two days to go till voting day. The pound last stood at 1.2890 dollars in late session.
The euro stuck to a tight trading range on Tuesday and was trading near Friday’s 7-month highs at 1.1270 dollars. Expectations that the ECB will change its tone to a less dovish one when it meets for its policy meeting on Thursday continued to support the single currency. There was little reaction to data out of the Eurozone today. The Eurozone sentix index rose by 1.0 to 28.4 in June, beating estimates of 27.5. Retail sales for the region were also released today, with the month-on-month rate falling short of forecasts of 0.2% to rise by 0.1% in April.
The Canadian dollar was slightly weaker in late European trading after the Ivey PMI unexpectedly fell in May. The Ivey PMI, which measures economic activity across all sectors in Canada, fell to 53.8 in May from 62.4 in April. Expectations were for a reading of 62.0. USD/CAD rose to 1.3480 after the data.
Gold prices surged to a 7-week high on Tuesday as Thursday’s risk events generated increased demand for safe-haven assets. The yellow metal climbed more than 1% to $1294.80 an ounce in late session.
The yen also rallied today on the back of the increased risk-off sentiment. However, despite the risk aversion, the Australian and New Zealand dollars managed to head higher versus their US counterpart. The aussie was boosted earlier in the day from a positive outlook on Australian growth by the RBA, helping it hit a one-month high of 0.7517 against the greenback. The kiwi was even more bullish as it soared towards 3-month highs to break above the 0.72 level after another increase in global dairy prices. The GDT price index rose by 0.6% at the latest bi-weekly auction, making it the sixth straight increase.