Financial markets have recently fluctuated in gold prices, with the US dollar index falling by 0.1%. This decline in the value of the dollar has made dollar-denominated bullion more expensive for holders of other currencies, contributing to an increase in demand for gold, which is considered a safe haven. When the dollar weakens, gold becomes more attractive to investors seeking to protect their money values from currency fluctuations, which fuels its price rises.
Yip John Runge, market strategist at IG, said the slight decline in the US dollar and yields on US Treasuries in the last session helped resume the recovery of gold prices after the decline witnessed following the release of US Federal Reserve data. This decline in the dollar came after a series of policy and monetary decisions taken by the Federal Reserve in the recent period, which led to volatility in the markets.
Gold, considered one of the most stable traditional assets in periods of economic uncertainty, benefited from the dollar’s decline, with many seeing it as a hedge against inflation and financial market volatility. US bond yields, heavily influenced by the Federal Reserve’s decisions, have played an important role in gold’s movements during the past period.
As yields on bonds rise, investors tend to turn to bonds as a safer investment compared to gold, leading to a decrease in demand for the yellow metal. But with Yields have recently declined, gold has returned to its recovery. On the other hand, movements in the currency and bond markets reflect many expectations regarding the future of monetary policy in the United States. The Federal Reserve has raised interest rates continuously in recent months, trying to control inflation that has been at high levels.
Factors affecting the USD
The price of the US dollar is a crucial factor in the global economy, directly affecting financial markets and international trade. Many factors affect the value of the dollar, including a set of economic and political factors that can lead to its rise or fall.
Of these factors, the performance of the US economy is the most prominent. When the US economy shows strength in growth or unemployment decreases, demand for the dollar increases, pushing up its value. Yields on US bonds are also an influential factor, as high yields on US bonds encourage foreign investors to buy dollars to invest in these bonds, which leads to a strengthening of the value of the dollar.
On the other hand, the Fed’s monetary policy has a significant impact on the dollar. If the US central bank raises interest rates in an attempt to reduce inflation, this encourages the flow of foreign investment into US markets in search of higher yields, supporting the strength of the dollar. Conversely, if the Fed decides to cut interest rates, it could weaken the dollar as returns on investments decline. American. Geopolitical factors also affect the price of the US dollar.
In the event of political or economic tensions at the global level, investors tend to turn to the dollar as a safe haven, which enhances its value. In periods of global stability, demand for the dollar may decrease if other currencies have stability or attractive yields. On the other hand, international trade also affects the dollar, as the US trade balance deficit contributes to reducing the demand for the dollar, which could lead to a decline in its value.
The impact of the dollar on financial markets
The US dollar is the world’s main reserve currency, giving it a significant impact on global financial markets. The USD continuously interacts with many financial markets and assets, affecting the value of stocks and bonds, as well as the movement of foreign currencies. When the US dollar rises, it is generally reflected in financial markets by increasing the attractiveness of USD-denominated assets, such as US bonds, which boosts demand for them. This rise in demand may lead to an increase in yields on US bonds, contributing to an appreciation of the USD, while a decrease in demand for other assets, such as commodities traded in dollars, may lead to lower their prices.
On the other hand, when the US dollar falls, this may make USD-denominated goods more expensive for foreign investors, leading to lower demand for them and lower prices. This can negatively affect commodity markets such as oil and gold, which are usually traded in dollars. However, the USD sometimes declines due to monetary policy or economic crises, which can contribute to the rise in stock markets, especially in companies that export their products abroad and benefit from a weaker USD in raising their exports.
The influence of the USD goes beyond domestic markets to include currency markets. When the USD rises, it typically sees other currencies, including the euro, Japanese yen, and pound sterling, fall. This affects companies that rely on imports and exports, and leads to fluctuations in global prices. On the other hand, foreign investors may benefit from a weaker USD, as US stocks become less expensive for them.
