Forex News Roundup For July 24th, 2020
FX News Roundup: Gold and Silver Continue Impressive Gains as USD Falters
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In this edition, we take a look at how gold and silver have continued their strong gains into July, and why this is significant in the context of the US Dollar's (USD) recent downswing. Also, the Great British Pound (GBP) has recently fallen against the Euro (EUR) as the European Union's plan for a post-coronavirus economic recovery fund gains traction.
Precious Metals Gain as USD Falls
Gold and silver, the two most traded precious metals in the global market, have continued to post strong gains into July. Gold reached a fresh annual high of over $1,865 per troy ounce on Wednesday, while silver neared the $23 mark.
Gold and silver have now appreciated by 22 percent and 25 percent since the start of 2020, respectively. Although this may not seem immediately relevant to the Forex market as the Gold Standard has long been abolished it still is pertinent.
This is because gold is considered to be a safe haven asset, like the Greenback, and while gold has been rallying impressively in recent days and weeks, the USD has been more of a mixed bag, with its price fluctuating against significant currencies and Emerging Market (EM) currencies.
So, this indicates the US Dollar's recent turbulence is unrelated to the global economic crisis, which was precipitated by the Covid-19 pandemic, and suggests developments like the US-Sino trade war and the fragile state of US politics are weighing heavily on the Greenback's strength.
Forex analysts have stressed that the USD could depreciate sharply as the pandemic begins to ease. A global economic recovery gets underway, especially if the US economy is unable to match the rate of other countries' economic resurgence.
As this happens, we should also expect to see riskier assets, like EM currencies and lower rated bonds, recover ground quite swiftly, as investor appetite for safe-haven assets drops off, and they flock to more lucrative and riskier investments.
GBP Loses Ground Against the Euro
The Great British Pound suffered a setback against the Euro earlier this week after the European Union's plans to launch a Covid-19 economic recovery fund gained traction. The GBP is currently trading at around 1.10 against the Euro, a few percent down on its July high of roughly 1.12.
Although the outlook does look somewhat bleak for Sterling, it is likely that the GBP would shoot up against the Euro if the bloc's coronavirus recovery fund initiative fell through.
A favorable Brexit deal would also help the Pound against the Euro and many other of its currency rivals, analysts noted.
A Quick Summary
- Gold and silver have continued their strong run into July, and the two precious metals are now both over 20 percent up year to date (YTD).
- Their latest gains came as the Greenback fell by varying amounts against some major and EM currencies, indicating that the USD's recent slump is unrelated to the state of the global economy (as gold is also a safe haven asset, but it has fared better in recent weeks.)
- Meanwhile, the Great British Pound fell by around two percent against the Euro earlier this week as investors anticipated a swifter European recovery as the EU's plans for a Covid-19 recovery fund gained momentum.