Gold prices yesterday climbed to an all-time high and the US dollar extended its slump as investors mulled simmering Sino-American tensions, the upcoming US Federal Reserve meeting and a smattering of second-wave outbreaks of COVID-19.
Gold strengthened 2.1 percent to US$1,941.09 an ounce. The precious metal notched its biggest intraday increase since April, while a gauge of the US dollar sank to levels seen in January last year. Treasuries edged higher, and bitcoin climbed back above US$10,000.
Precious metals, along with bonds, are often seen as stores of value when financial markets decline. Investor concern about the global economy and expectations that the US central bank’s rate-setting Federal Open Market Committee (FOMC) could reinforce a dovish outlook are driving the US dollar and precious metals in opposite directions, while supporting US equities.
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Meanwhile, fresh outbreaks of the virus emerged from China to Spain, although cases fell in California, Arizona, Florida and New York.
“The July FOMC meeting should kick off a period from August into mid-September in which markets should price in an increasingly dovish, forward-looking Fed policy via lower real rates,” Morgan Stanley strategists including managing director Matthew Hornbach wrote in a report. “This should benefit breakeven inflation rates, support risk assets, and weigh on the US dollar.”
Analysts say that the mixed indicators in the past few months would not be enough to get the FOMC to change course, particularly not after it cut the benchmark lending rate to 0 to 0.25 percent in March.
“We don’t expect much to come out of this particular meeting,” Barclays PLC deputy US economist Jonathan Millar said.
Additional reporting by AFP
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
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