Palladium declines by over 4% as dollar strengthens
Palladium prices fell on Tuesday as dollar rose against most major rivals while markets process latest policy decisions by global central banks.
US inflation clocked in the slowest read in two years, raising hopes the Fed might be ending the current cycle of policy tightening soon, which in turn pressured the dollar.
Chinese authorities also vowed recently to boost the struggling real estate market, in turn boosting minerals demand.
Recent weak industrial data in China weighed on sentiment considerably with manufacturing activities slowing down for the fourth straight month in China, while services and construction approach a contraction.
As for the US, hopes are increasing for controlling inflation without causing a recession in the world's largest economy as recent data showed a resilient labor market and strong corporate profits.
Otherwise, the dollar index rose 0.5% as of 16:51 GMT to 102.3, with a session-high at 102.3, and a low at 101.8.
Palladium prices fell 4.1% as of 16:52 GMT to $1,225 an ounce.
Dollar extends gains to three-week high ahead of important data
The dollar rose in European trade on Tuesday against a basket of major rivals, extending gains for the fourth straight session and hitting three-week highs following bullish remarks by Fed officials and after local banks reported more stringent credit standards.
The gains ahead of important US data on job opportunities and manufacturing for July, which will help determine the likely path ahead for policies.
The Index
The dollar index rose 0.5% to 102.40, the highest since July 10, with a session-low at 101.85.
The index closed up 0.2% yesterday, the third profit in a row after bullish remarks by a Fed officials.
Remarks
Chicago Fed President Austin Goolsbey said the Fed is on track for reducing inflation without causing recession, and will monitor data to determine whether further policy tightening is needed in September.
US Banks
Earlier Fed data showed that local banks reported more stringent credit standards with demand on loans declining from both companies and consumers in the second half of the year.
The survey showed that US banks expect even more stringent standards for the rest of 2023, showing the impact of US interest rates on the economy.
US Rates
Pricing for a 0.25% US interest rate hike currently stands at 20%.
Data
Investors await a batch of important US data later today, including data on US manufacturing and job opportunities.
US ISM manufacturing PMI is expected up slightly to 46.9 in July from 46.0 in June.
Flexible control in yield curve, is it a step towards Japanese policy normalization?
Bank of Japan caused some confusion in the markets last week when it made control over the government yield curve more flexible, the first surprising step from new governor Kazuo Ueda.
Such a step will represent an actual move from Bank of Japan to normalize monetary policies as soon as possible, however yen's reaction made some people think the step was merely technical to improve monetary easing measures.
Several global economists however do believe it's the first step to normalize Japanese policies.
Why then did yen tumble to three-week lows against dollar? it's mainly because BOJ launched wide-scale unscheduled purchases of government bonds to boost economic recovery.
Such a measure cast doubts on the prospects of normalizing policies in Japan soon.
BOJ
At the third meeting helmed by new BOJ Governor Kazuo Ueda, the bank maintained current policies unchanged as expected with interest rates still at negative 0.1%.
The bank also maintained current 10-year government yield targets at zero, and the upper range at 0.5%.
However, the bank said that control over the yield curve will be more flexible up and down, and the range will serve as a general guiding point.
BOJ said it's appropriate to leave interest rates unchanged to support economic growth while continuing to purchase government bonds on a wide range.
Quick Execution
Already, the BOJ announced offers to purchase 10-year government bonds at 1% interest rates, instead of the previous upper limit of 0.5% on interest rates, showing the bank is accepting more policy tightening.
With such a rare offer, the bank allowed 10-year government yields to hit a nine-year high at 0.575%, before tapering off to 0.54%.
BOJ governor Kazuo Ueda said he's giving the market more leeway to push yields higher.
Inflation Forecasts
BOJ raised inflation forecasts from 1.8% to 2.5% but still held on to its overall stimulus measures.
Policy Differences
BOJ's policies remain radically different from global central banks all over the world, with the Fed raising interest rates 11 times so far since last year by 5.25%, while the European Central Banks raised interest rates last week for the ninth time in a row.
Japan remains the only country in the world with negative interest rates, however higher inflation continues to pressure BOJ to change its ultra-easy policies and tight control over the yield curve.
Gold resumes losses under pressure from dollar
Gold prices fell in European trade, resuming losses after a two-day hiatus amid pressure from the stronger dollar.
The dollar rallied to a three-week high after bullish remarks by Fed officials, and after local banks reported more stringent credit standards.
Gold Prices Today
Gold prices fell 0.5% to $1,954 an ounce, with a session-high at $1,966, after rising 0.3% on Monday, the second profit in a row, moving off a two-week trough at $1,942.
Gold rose 2.3% in July,the first monthly profit in three months on speculation the Fed will end the current cycle of policy tightening soon.
The Dollar
The dollar index rose 0.3% on Tuesday on track for the fourth profit in a row, hitting a three-week high at 102.12 against a basket of major rivals.
A stronger dollar makes dollar-denominated gold futures costlier to holders of other currencies.
US Banks
Earlier Fed data showed that local banks reported more stringent credit standards with demand on loans declining from both companies and consumers in the second half of the year.
The survey showed that US banks expect even more stringent standards for the rest of 2023, showing the impact of US interest rates on the economy.
Data
Investors await a batch of important US data later today, including data on US manufacturing and job opportunities.
strong data will boost dollar's current gains and sharpen the decline of gold and other dollar-denominated commodities.
The SPDR
Gold holdings at the SPDR Gold Trust remained flat yesterday at 912.93 tones, the lowest since July 18.