Gold heads for best week in five on Fed rate pause bets

“Every man dies, but not every man really lives.” —William 

HEADLINES

• Dollar gains before Fed meeting, inflation data
• Gold heads for best week in five on Fed rate pause bets
• Oil posts second weekly decline as demand concerns overshadow Saudi cut
• S&P 500, Nasdaq hit fresh 2023 highs as Tesla rallies
• Treasury yields climb as investors prepare for Fed policy meeting
• USD/JPY: BoJ to react only once 145 is near – Credit Suisse 
• USDJPY Near Term: Upside favored

Dollar gains before Fed meeting, inflation data

The dollar bounced off two-week lows on Friday as investors awaited inflation data and the Federal Reserve’s interest rate decision next week for any new clues on how high the U.S. central bank is likely to hike rates.

The Fed is expected to hold rates steady at the conclusion of its June 13-14 meeting, but is likely to also maintain a hawkish tone and indicate that a hike is likely in July as inflation remains above its 2% target.

Inflation data on Tuesday is expected to show headline inflation rose at an annual rate of 4.1% in May, while core prices gained 5.2%. (USCPNY=ECI), (USCPFY=ECI)

COMMODITIES

Gold heads for best week in five on Fed rate pause bets

Gold eased on Friday on a stronger dollar and higher yields, but was set for its best week since early May after weaker jobs data bolstered bets for the Federal Reserve to hold pat on interest rates next week.

The dollar index bounced off two-week lows, making gold expensive for overseas buyers, while higher 10-year Treasury yields made zero-yield bullion less attractive.

Markets now priced in a 72% chance of the Fed standing pat next week, but odds of a hike in July were 67%, the CME Fedwatch tool showed.

ENERGY

Oil posts second weekly decline as demand concerns overshadow Saudi cut

Oil prices fell more than a dollar a barrel on Friday to record a second straight weekly decline, as disappointing Chinese data added to doubts about demand growth after Saudi Arabia's weekend decision to cut output.

Both benchmarks lost more than $3 on Thursday after a media report that a U.S.-Iran nuclear deal was imminent and would result in more supply. Prices pared losses after both countries denied the report, ending about a dollar a barrel lower.

Oil prices had risen early in the week, buoyed by Saudi Arabia's pledge over the weekend to cut more output on top of the cuts agreed earlier with the Organization of the Petroleum Exporting Countries and its allies.

STOCKS

S&P 500, Nasdaq hit fresh 2023 highs as Tesla rallies

U.S. stocks pared gains on Friday, with the S&P 500 fighting to stay firmer as a Tesla rally failed to galvanize the broader market on the eve of the Federal Reserve's policy meeting and inflation data next week.

A megacap stocks rally, better-than-expected earnings season and expectations that the Fed was nearing the end of its rate-hiking cycle have supported Wall Street this year despite concerns about a looming recession and sticky inflation.

The S&P 500 posted 14 new 52-week highs and five new lows; the Nasdaq Composite recorded 75 new highs and 39 new lows.

Treasury yields climb as investors prepare for Fed policy meeting

U.S. Treasury yields rose on Friday as investors looked ahead to the Federal Reserve monetary policy meeting next week, where officials will announce a fresh interest rate decision.

Investors weighed what could be next for interest rates ahead of the Fed’s next meeting on June 13 and 14. Uncertainty about whether the central bank will continue or pause its rate-hiking campaign has spread in recent weeks as both Fed officials and economic data have provided mixed signals.

Weekly initial jobless claims came in higher on Thursday, reaching the highest level since October 2021, according to the Labor Department.

ANALYSIS

USD/JPY: BoJ to react only once 145 is near – Credit Suisse 

“Disappointing Japanese wage data are reducing risks of a hawkish turn in BoJ policy at the upcoming 15-16 Jun, with negative implications for JPY.

We suspect the BoJ will be content to see this unfold for now rather than try to signal a tighter policy stance.

Only if USD/JPY drives higher towards our near-term 145 target would we expect a reaction. But even then, it is first likely to be verbal or actual FX intervention rather than through signalling a monetary policy shift.”

CHART

USDJPY Near Term: Upside favored

Technical View: Long position above 139.2. Target 140. Conversely, break below 139.2, to open 139.

Comments: The pair remains supported. Further advance favored.

CALENDAR

*Times in GMT

Source: FX Street Economic Calendar

Footnotes
https://www.reuters.com/markets/currencies/sterling-edges-up-markets-focus-interest-rate-hike-bets-2023-06-08/
https://www.cnbc.com/2023/06/08/gold-climbs-on-softer-dollar-as-traders-weigh-fed-verdict.html
https://www.reuters.com/markets/commodities/oil-steady-investors-weigh-supply-demand-drivers-2023-06-08/
https://www.reuters.com/markets/us/futures-muted-bond-yields-rise-rate-jitters-2023-06-08/
https://www.cnbc.com/2023/06/08/us-treasury-yields-investors-assess-interest-rate-outlook.html
https://www.fxstreet.com/news/eur-usd-needs-to-make-progress-above-resistance-at-10785-to-improve-scotiabank-202306081300