In spite of somewhat of a recovery in USD sentiment across recent trading sessions, Gold continues to hang within touching distance of the critical $2000 handle. Themes such as stress in the banking sector, ongoing data releases reflecting how the world economy is reacting to the substantial shift towards higher interest rates globally over the last year and the ongoing corporate earnings season in the United States will likely continue to dictate market sentiment over the near-term.
We can also look for potential catalysts, such as returning calls for further rounds of softness in the USD to provide Gold with a helping hand in price. There is potential for that support to act as a friend for Gold investors over the remainder of 2023, especially if Initial Jobless Claims data from the United States creates concern that the US Federal Reserve pushed the accelerator too hard with interest rates in the United States rising at the fastest pace over the last year that we have encountered in decades. Thursday’s release did indicate that this train of thought is starting to gather more steam, although the market would need to see a continuation of increases in weekly Initial Jobless Claims and the monthly Non-Farm Payroll data releases in order for calls to the Federal Reserve for potential decreases in rates from later this year to hold more credibility. For now, such calls do appear premature. It is though reasonably clear that the Fed’s interest rate increase cycle has peaked.
With that being said, expectations for weakness in the Greenback if economic data releases from the United States do stress that the Federal Reserve was over aggressive with interest rate increases would provide some respite in other economies ongoing battle against inflation through a stronger respective currency. One central bank who would welcome such a development is the Bank of England, who arguably appear to have not been hawkish enough with UK interest rates. The United Kingdom economy inflation rate remaining stubbornly high and data this week shows that inflation is also still in double-digits. Such facts irrespective of the GBPUSD surging back above 1.24 after the doomsday events of the Pound spectacularly declining below 1.10 while UK politics played musical chairs late September 2022 do prove that reduced import pressures through a stronger currency alone are far from our only friend in the battle against global inflation.
One factor that should be put to bed as a meaningful trigger for a dramatic shift in expectations across FX rates is returning speculation that the role of the USD as the dominant global currency is under threat. Such headlines over the supposed demise of the USD has flared up and caught fire before going away more times than one can count for decades. The fact that the USD remains on one side of up to 90% of all FX trades according to legitimate sources such as BIS (Bank for International Settlements) is more than enough to spell out the overwhelming dominance that the Greenback continues to hold over the financial world. Do the recent actions from China and its increased presence of a role in mediation suggest that the world has moved to a more multi-polar world in terms of global affairs? Yes.
However, the gradual diminishing role of the United States on a global stage as main hegemony and its role as the largest capital market in terms of financial superpower are two completely different matters. Analysis scheduled for next week will provide more context for what we mean here.
As we head towards the final trading week of April 2023 it is expected that the ongoing corporate earnings releases will dictate market sentiment and the flow of the news. If the near 10% drop in Tesla as the narrative carries that price cuts are eating into profit margins becomes an ongoing theme, then we can expect calls for a deeper correction in global markets to get louder. Tesla is far from alone at pointing out some of the current challenges facing corporations. The final trading week of April is scheduled to see updates from corporate giants such as Microsoft, Amazon, Facebook, and Visa.
The controversial decision from Twitter to remove legacy blue ticks for verified accounts and the impact this might have for the social media giant will take time. Even though many will still cry out as verification is removed, there are many that will still purchase verification through monthly subscriptions and this will ultimately create revenue streams for the social media giant.
As long as people are paying for the Twitter service and engagement on the social media platform remains at high levels, this will be viewed as a win for the company that Elon Musk purchased for above $40 billion last year.