Gold Eases On Firmer Dollar; Recovery Worries Limit Losses

EURUSD Price Chart

EURUSD Price Chart

On Wall Street, the Dow Jones Industrial Average .DJI fell 632.75 points, or 2.25%, to 27,500.56, the S&P 500 .SPX lost 95.14 points, or 2.78%, to 3,331.82 and the Nasdaq Composite .IXIC dropped 465.44 points, or 4.11%, to 10,847.69.

In a quiet start to the trading day on Monday, the euro last stood at $1.1841, unchanged on the day, while the dollar index was little changed at 92.875. Foreign exchange trading was likely to be subdued as USA financial markets are closed for the Labour Day holiday. "Europe may need to find new ways to support its economy in the face of permanently lower United States rates".

"I think the market will shrug this off as electioneering but may find the lining up of technology stock sellers harder to process as the USA market returns from a holiday yesterday", said Chris Bailey, European Strategist at Raymond James.

Market players also awaited the policy meeting of the Bank of Canada on Wednesday, while the U.S. central bank's next meeting is scheduled for next week. "What happens as a result is that a stronger dollar and yen bump into each other, meaning other currencies could weaken", said Minori Uchida, chief currency analyst at MUFG Bank.

Most analysts do not expect a change in the central bank's policy stance but are looking at its inflation forecasts and whether an accommodative tone could help cool down the surge in the bloc's single currency.

The dollar has already weakened by over 10 percent against a basket of currencies since mid-March to a more than two-year low, prompting European Central Bank chief economist Philip Lane to warn last week that the exchange rate mattered, even if the European Central Bank didn't target it.

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After an underperformance in long-dated Italian bonds in anticipation of the sale on Monday, the Italian 10-year Btp yield was down 1.4 basis points at 1.66%. Spot gold was down 0.5 per cent at $1,918.79 per ounce by 1203 GMT (5:33 pm in India), after falling as much as 1 per cent to $1,907.61 per ounce.

Global equity markets and oil prices tumbled on Tuesday as a sharp sell-off in technology stocks and rising concerns over Britain leaving the European Union without a trade agreement threatened the rally that had pushed world shares near record highs despite the coronavirus pandemic.

UK Prime Minister Boris Johnson's office released comments on Monday that Britain has set a deadline of October 15, and if none of the free-trade deal is agreed, both sides should "accept that and move on".

The Chinese offshore yuan was little changed and last fetched 6.8334 per dollar after customs data on Monday indicated that the country's exports marked the strongest gain since March 2019 while imports slumped.

Indeed, some economists say that the current exchange rate could already deduct 0.2 percent-0.4 percent from euro zone growth and analysts polled by Reuters see more dollar weakness.

"As long as Fed policy makes it harder for the dollar to rise, the BOJ will have to worry about potential yen rises that needs a policy response including a deepening of negative interest rates", he said.

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