Dollar eases, gold rallies over 2% as sterling slips after cautious BoE

The US dollar softened, reversing its recent rally, while gold rebounded significantly. The British pound weakened broadly after the Bank of England held interest rates steady.

After a previous session marked by dollar strength following the Federal Reserve's rate hike and a slide in gold, Thursday saw a reversal of these trends. The US Dollar Index (DXY) ended softer, hovering just above the 100.00 mark, halting a six-day rally.

Major currency dynamics

• The US dollar slipped against the Japanese yen, with USD/JPY trading near 156.00. US dollar buyers took a breather, contributing to USD/CHF trading slightly lower as the Swiss franc regained some ground after six straight days of falls.
• The British pound slid across the board after the Bank of England (BoE) left its Bank Rate unchanged at 3.75%. GBP/USD traded near 1.3350, marking its weakest level since the end of July. GBP/JPY also lost about 0.39%, trading at 208.32.
• The euro climbed against the sterling, with EUR/GBP trading higher towards the 0.8600 barrier and reaching its highest level in several days.
• The New Zealand dollar gained ground, with NZD/USD rebounding around 0.5730, up 0.35%, after stronger-than-expected domestic growth data.
• The Canadian dollar stayed on the back foot, with USD/CAD posting a fresh five-week high near 1.4000 after the Fed’s hawkish hike.
• The Singapore dollar showed a bearish bias against the US dollar, with USD/SGD surging to 1.2783, its largest one-day gain in three months, according to UOB. OCBC strategists noted the Singapore dollar remains largely driven by the broader dollar story.

Commodities and broader market

• Gold (XAU/USD) rallied significantly, up more than 2% from the six-week low it touched on Wednesday. The metal shrugged off the recent Fed hike as falling US Treasury yields reopened a path towards $4,400.
• Silver surged to five-day highs above $66.00, also digesting the Fed rate hike and benefiting from a drop in US Treasury yields.
• WTI crude traded near $97.50, where it opened, recovering fully after an earlier drop to $94.50. This recovery followed reports of Saudi Arabia offering Asian refiners extra cargoes outside the Strait of Hormuz.
• The Dow Jones Industrial Average rebounded, trading above 51,800, after falling below 51,500 on Wednesday following the Fed's rate increase. US President Trump also stated he faced a "big decision" regarding potential new attacks on Iran, per Axios.

Economic data and market pulse

• The Bank of England held its Official Bank Rate at 3.75%, matching forecasts, on a 6-3 vote with three members backing a hike. Rabobank saw the risk of a November hike rising on higher energy prices and the Middle East conflict.
• In the US, the Philly Fed Manufacturing Index came in at 37.8, exceeding the forecast of 31.3, while initial jobless claims were better than estimated at 196K. However, August housing starts missed expectations, reported at 1.275 million against an anticipated 1.309 million. Canada's August producer price index rose 1.3% month-over-month.
• Our market readiness score (MRS) stood at 62, the carry trade score (CTS) was 76, and the forex strength index (FSI) registered 61 (Greed). The session saw no clear currency leader; at the other end the Australian dollar spent 21% of the session’s minutes as the weakest major. The dollar led only 113 of those 1,437 minutes, seventh of the eight majors, on the day its six-session rally stopped.

Looking ahead

Traders now await the Bank of Japan's monetary policy decision, statement, and press conference due later today. The economic calendar also includes UK retail sales figures and a speech by ECB President Lagarde.