A sense of caution washed over Asian markets on Tuesday as unease over the spread of the Delta variant and concerns around the strength of China’s recovery drained risk sentiment. The dollar has edged higher while gold prices have firmed as Treasury yields drifted lower. A just- announced new lockdown in New Zealand has slammed the kiwi after a single case of Covid-19 was found in Auckland. This comes ahead of the RBNZ who were expected to raise interest rates at its meeting tomorrow.
European stocks have opened slightly lower this morning amid the Delta fears and geopolitical tensions in Afghanistan. Despite closing at record highs overnight, US stocks could come under pressure today if the risk-off mood accelerates the flight to safety. All in all, the next few hours promise to be eventful for financial markets as investors juggle key economic data from major economies, the continued rise of the Delta variant and a speech by Federal Reserve Chairman Jerome Powell.
US Retail Sales and Powell in focus
The dollar continues to nurse the deep wounds inflicted by last Friday’s dismal consumer sentiment report. It has kicked off Tuesday on a firm note, appreciating against all G10 currencies this morning ahead of the retail sales data and Jerome Powell’s speech.
US retail sales for July are expected to drop -0.3% month-over-month compared to the 0.6% gain witnessed in June. Given how consumer spending accounts for a handsome chunk of the US economy, the data is significant and could influence Fed taper expectations. In regards to Powell’s speech, any fresh insight offered on the Fed’s future course of action or hints about tapering could result in dollar volatility. Nevertheless, investors will continue to look towards the Jackson Hole symposium in late August for clues to the central bank’s next move.
Currency spotlight – GBP/USD
The British Pound has woken up on the wrong side of the bed this morning despite the better- than-expected UK jobs data.
According to the Office of National Statistics (ONS), the unemployment rate in the UK fell to 4.7% in June beating market expectations of 4.8%. The number of people in work rose by 95,000 in the three months to June, stronger than the 75,000 market forecast. Average wages also beat expectations, rising 7.4% compared with the 6.6% in the previous month while wages including bonuses hit 8.8%, above the 8.6% estimate and higher than the upward revised figure of 7.4% in May.
Despite this strong report, the GBPUSD is under pressure on the daily charts with prices approaching the 200-day Simple Moving Average. As the broader risk-off mood encourages investors to seek safety in destinations like the dollar, this could drag GBPUSD lower. A daily close below 1.3750 could signal a decline towards 1.3640 and lower.
Commodity spotlight – Gold
Gold staged a stunning rebound last week as the combination of dollar weakness and Delta variant fears injected gold bugs with a renewed sense of confidence. The precious metal has entered the week with a spring in its step amid the risk-off mood with prices trading back above $1792 as of writing. A strong daily close above this point could open the doors towards $1800 and $1830. Alternatively, should $1792 prove to be reliable resistance, a decline back towards $1760 could be on the cards.
