06/09/2023 - 07:54 UTCThe US dollar is back to a positive trajectory on Tuesday, with the USDX posting gains of 0.68% for the day and closing in on six-month high levels. Weak economic data reports from China and Europe on Tuesday seem to raise concerns for slowing global growth and push back risk appetite, shifting investor funds to the safe haven of the dollar. This move is also reflected in some emerging currency pairs such as the USD/ZAR, that gained 0.18%, the USD/CNH that saw a rise of 0.32% and the USD/MXN that surged by 1.32%.
Reports from the euro zone and the U.K indicated weakness in business activity last month, while a private-sector survey on China's services activity reported August growth at the slowest pace in eight months.
Energy prices posted significant gains for yet another day on Tuesday, hitting highs last seen in November 2022, adding to the sharp uptrend displayed on the charts since late June. WTI closed 1.18% higher on Tuesday while Brent was up by 1.20%. Despite renewed global growth concerns, the price of the fuel could be receiving support from worries over a supply shortage after Saudi Arabia and Russia extended their voluntary supply cuts to the end of the year. The Saudi and Russian voluntary cuts are on top of the April cut agreed by several OPEC+ producers.
The main US stock indices closed lower on Tuesday possibly weighed down by an increase in Treasury yields, however, gains in energy stocks limited the drop. U.S. Treasury yields were up despite indications that the Fed will pause its rate hike cycle at its September 19-20 meeting. The US 500, the US 30, and the US tech 100 all declined by 0.41%, 0.44% and 0.03% respectively. Solid performances were seen by Airbnb and Blackstone on Tuesday as both stocks are set to be included in the S&P 500 on Sept. 18.
For Tuesday, some price action could be seen upon the release of eurozone retail sales which are expected to have weakened in July, showing that consumers in the region remain under pressure as inflation remains elevated. Later in the day Canada will announce its interest rate decision and the U.S. will release its trade balance and ISM services PMI.
The EUR/USD posted a sharp decline during yesterday's session ending the session at the lowest level since June losing 0.62%. The pair maintains a downward trend due to a stronger US Dollar and concerns over the Eurozone’s economic outlook.
The Euro has been negatively affected by downward revisions to the September PMIs. The Eurozone's Service PMI came in at 47.9, below the preliminary reading of 48.3.
On the other hand, Federal Reserve Governor Christopher Waller stated on Tuesday that data will determine whether further rate hikes are needed, and he would require more information to conclude that the Fed is done raising rates.
On Wednesday, Germany will release Factory Orders data, and the Eurozone will release Retail Sales figures. In the US, the ISM Services PMI is due.
Gold prices slipped to a one-week low on Tuesday ending the session with losses of 0.57% amid a rise in bond yields and a jump in the U.S Dollar. Concerns about global growth, particularly in China and the Eurozone- caused the safe-haven dollar to hit multi-month highs against a basket of currencies, making gold more expensive for overseas buyers.
Expectations that the Fed will keep rates higher for longer have kept investor appetite for gold limited, with recent labour and inflation indicators showing that the central bank still needs to keep policy restrictive in the near-term.
Oil prices rose by one dollar a barrel on Tuesday to hit their highest level since November, after Saudi Arabia and Russia extended their voluntary supply cuts to the end of the year, raising investor’s concerns about potential shortages during peak winter demand.
Market participants had expected Saudi Arabia and Russia to extend voluntary cuts into October, but the three-month extension was unexpected. Both Saudi Arabia and Russia said they would review the supply cuts monthly and could modify them depending on market conditions.
Wall Street's three major averages closed lower on Tuesday with the Dow leading declines as Treasury yields rose along with oil prices and investors could possibly reassess prospects for the Federal Reserve's interest rate path. The US 500 and US 30 ended the session 0.41% and 0.44% lower respectively, while US tech 100 posted minor losses of 0.03%.
U.S. Treasury yields climbed even as Fed officials signalled that the central bank could skip a rate hike at its Sept. 19-20 meeting later this month. Data on Tuesday showed orders for U.S. factory goods declined 2.1% in July, ending a four-month streak of gains.
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