King Dollar has appreciated against a basket of major currencies ahead of this afternoon’s estimate of first-quarter GDP growth. Seasonal factors are expected to see GDP growth cool in Q1, but this could have little impact on the Dollar’s mojo. With rising U.S. bond yields and expectations of higher U.S. interest rates heavily supporting the dollar, it is likely to hold its own against most majors.
The rebounding U.S. dollar, rising government bond yields and the still-buoyant stock markets are helping to generate significant headwinds for gold. The shiny metal is priced in U.S. dollars and with the greenback rising, this is the main reason behind today’s sell-off. On top of this, the rising government bond yields further reduce the appeal of the noninterest-bearing commodity, while the rebounding European stock markets makes the safe haven asset even less appealing. So, for gold to come back, it needs the dollar, stocks and/or yields to head back south.
The British pound's abrupt and aggressive depreciation following disappointing UK inflation data continues to highlight how sensitive the currency is to monetary policy speculation. The UK headline inflation rate unexpectedly dropped to 2.5% in March, which immediately raised doubts over the Bank of England raising interest rates next month. With UK wage growth rising faster than inflation, the squeeze on consumers is slowly coming to an end.