Gold claims back the $1900 hurdle as the dollar falls from 2-month highs

US bond yields rise to their highest level in 16 years

By Nadia Elbilassy | @Nadia Elbilassy | 22 August 2023

midday (3)
  • Investment banks warn that Powell could flag new higher baseline rates

  • Improved risk appetite and higher government bond yields led to a decline in the US dollar, which dropped by 0.23% to around 103.00.

  • Markets expect the Federal Reserve to maintain high interest rates and speculate ahead of the Jackson Hole Forum for more signals

Risk appetite knocks off dollar

The US dollar fell from its highest level on the back of improved risk appetite and after a jump in government bond yields that topped their highest levels in 16 years. The greenback was last seen down by 0.23% to levels of 103.00.

The trend could also be fueled by profit taking activities ahead of the Jackson Hole Forum at the end of the week. This is coupled with the ongoing positive trajectory of US economic data and the alleviation of worries surrounding a potential slowdown or recession in the US economy. As a result, markets gear up for the likelihood of the Federal Reserve maintaining elevated interest rates for an extended duration.

The Jackson Hole statements will be a key turning point for the dollar’s future trajectory. Any signals on the continuation of a prolonged period of monetary policy tightening could potentially lead to the dollar being back on top.

Gold bounces back up

Changing hands with the dollar were gold prices picking up from their lowest levels to hover near $1900 per ounce. Despite 10-year Treasury bonds yields surging to its highest point since November 2007 which negatively affects the yellow metal but the dollars slight pull back gave the safe haven some relief.

Speculations over higher interest rates is adding to the rise of bond yields and could consequently trigger safe haven demand sell offs for assets like gold, which do not yield interest.