In early Asian trading on Tuesday (August 22), the US dollar index fell slightly to 103.36, gold suppressed the dollar to $1,893, and gold bulls continued to look to $1,900. The central bank of China cut interest rates less than expected, and the Federal Reserve released the results of the SCE labor market survey, showing record wage expectations, which will stimulate and consolidate the US dollar shorts. The Bitcoin options market confirmed the lack of bearish momentum. Despite the 11.4% adjustment last week, the sentiment of professional traders was not affected.
The New York Federal Reserve Bank's SCE labor market survey results released late Monday showed record wage expectations, which could stimulate dollar bears. The survey results showed: "The minimum wage that respondents were willing to accept for a new job jumped to an all-time high of $78,645 in July, up from $72,873 a year ago."
It is worth noting that most of the upbeat U.S. data last week spurred the Fed's dovish behavior and set a floor for the dollar index. However, some of the top U.S. banks seemed to have trouble validating Fed Chairman Powell's hawkish move at Jackson Hole. Still, Goldman Sachs expects Powell to take a defensive stance during the central bank governor's annual event, but Bank of America expects Powell to resist rate cut expectations.
Last week, upbeat economic activity and wage growth data coupled with hawkish Federal Reserve minutes pushed the dollar index higher for a fifth straight week, challenging previous concerns about the policy pivot and adding to market anxiety ahead of speeches by central bankers at the Kansas City Fed's annual event this week.
Market sentiment remained subdued, while government bond yields rose, reflecting the ruling cautious stance. U.S. Treasury yields hit their highest level since 2007 as investors worried that global central bankers would extend their monetary tightening programs to curb inflation.
China remains at the center of the storm, with news that government land sales revenue fell for the 19th straight month in July. China’s central bank cut its benchmark 1-year lending rate by 10 basis points to 3.45% on Monday, following a similar move last week, in line with market expectations but falling short of expectations for bolder measures. The yuan fell on the news as speculative interest awaits more aggressive measures to support the currency. Later in the day, UBS cut its 2023 real gross domestic product (GDP) growth forecast for China to 4.8% from 5.2%.
The Bundesbank’s monthly report showed inflation was likely to remain above the central bank’s target for longer, while growth was expected to be largely flat in the third quarter.
EUR/USD struggles around 1.0900, lacking momentum to break above that level. GBP/USD seems more likely to extend gains, trading around 1.2740. A rise in AUD/USD will also boost gold prices, although the latter remains below $1,900. USD/CAD edged higher as lower oil prices weighed on the Canadian dollar.
USD/JPY is trading above 146.00 and close to recent multi-month highs of 146.53 as speculation grows that the Bank of Japan will need to recalibrate its ultra-loose monetary policy soon.
Next, the U.S. July existing home sales and August Richmond Fed manufacturing index will guide the intraday trend of the dollar index together with the speeches of the Fed's mid-level officials. However, as the Fed is hesitant about the next move, Powell's speech at the Jackson Hole Symposium on Friday will receive the main attention.
FXStreet analyst Anil Panchal mentioned that the one-month-old rising wedge bearish chart pattern, currently located between 104.00 and 103.20, combined with the RSI (14) line approaching the overbought level, poses a challenge for USD/JPY buyers.