FX Outlook: USD Flies Like A Hawk & Gold Rallies

<WikiFX Malaysia Original – Editor: Fion>

The gold market closed a day early last week on Friday (April 15 UTC +8) as it coincided with the Good Friday holiday. Spot gold ended the week with an increase of 1.29% to $1972.47 per ounce hitting a new high since the 15th of March.

The U.S. Dollar index was up by 0.63% for the week as it closed at 100.481. During the market hours, the USD hit the 100.767 level for the first time since April 2020. Based on the daily technical chart, it is highly possible for the U.S. Dollar to start remaining stable above the $100 key level and start going higher.

ECB almost the most dovish in the world

While central banks around the world are racing to curb soaring inflation, for example, the central banks of New Zealand and Canada had aggressively raised rates by 50 basis points,

the European Central Bank (ECB) only confirmed plans to end its stimulus measures in the third quarter, making it one of the most cautious major central banks in the world.

Some policymakers believe that the current high inflation is almost entirely the result of external supply shocks and that price growth may fall on its own over time. They argued that high energy prices will erode savings and the resulting shock will eventually hinder economic growth, thus bringing inflation back below its target.

However, the President of the ECB, Christine Lagarde warned that the early signs of long-term inflation are surfacing as inflation rate could surpass the 2% target set by the ECB with

risks that could potentially move far away from its anchor, thus close monitoring is necessary to keep the situation under control.

Russia-Ukraine peace talks stalled

On Tuesday, Russia‘s President, Vladimir Putin declared that its intermittent peace talks with Ukraine have come to a “dead end”. Since the outbreak of Russia’s invasion of Ukraine, U.S. President Joe Biden has been staying out of direct conflict and involvement between these 2 countries. Nevertheless, last Wednesday Biden announced that he would provide $800 million worth of military aid to Ukraine as this invasion is equivalent to genocide.

At the moment, Russian troops have withdrawn from some areas of northern Ukraine after heavy losses and a failed attempt to conquer Ukraines capital, Kyiv. Commerzbank analyst Daniel Briesemann explained in a report that Russia appears to be preparing for a major offensive act in eastern Ukraine (in the Donbas region) and this could trigger significant demand for gold as a safe-haven asset.

Commodity prices soared

Russia's invasion of Ukraine has triggered a flurry of sanctions, including a ban on oil imports from Russia by the U.S. and the U.K., and the European Union is considering a phased embargo. The Russia-Ukraine war also led to a spike in global food prices, as both countries are major exporters of commodities such as wheat and sunflower oil. Simultaneously, gasoline prices also soared by approximately $4.33 per gallon in March, playing the role of a catalyst for this concerning inflation, according to the American Automobile Association.

Political risk premiums from the escalating conflict between Russia and Ukraine are rising again and pushing up commodity prices, creating an environment of increased inflation and adding to spot gold's inflation-fighting appeal.

<WikiFX Malaysia Original – Editor: Fion>