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US Dollar Climbs to Fresh One-Year High, Pressures Gold

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More losses

In the previous part, we discussed how gold prices lost ~1% following Fed Chair Jerome Powell’s strong outlook for US economic growth and his conviction in the gradual rate hike path. There wasn’t a break for gold even after the steep decline. Gold fell ~0.43% on July 19 and ended the day at $1,218 per ounce. The catalyst for the fall was the report from the Philadelphia Federal Reserve highlighting growing momentum for the region’s manufacturing sector.

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Philadelphia Fed survey

According to the survey by the Philadelphia Fed, the index for current general business activity rose to 25.7 from 19.9 in June. The index also beat the consensus estimates of 21.6. Readings above zero imply economic expansion. According to the report, “All the broad indicators remained positive, with the general activity and new orders indexes improving this month.”

More strength in the US dollar

The US Dollar Index (UUP) (USDU) rose to a one-year high on July 19 to 95.4 after Powell’s comments and the Philadelphia Fed survey findings, which pressured gold prices. The divergence in the monetary policies followed by the US (SPY) Fed and other countries, especially the European Central Bank (HEDJ), have also been favoring the US dollar.

While the rally in the US dollar might have dominated foreign exchange markets for the last few months, that might change. Many market participants think that the markets have already priced in the rate hike trajectory by the Fed and the policy divergence theme. As the trade war escalates, the US dollar might not be the “go-to” safe-haven asset, which supports gold (GLD) (NUGT).

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