Title: Divergence in Markets: Strong US Economic Data Fails to Boost US Dollar as Gold and EUR/USD Strengthen
Author: Market analysis originally published by XTB
Despite better-than-expected US economic data being released, the US dollar ended weaker, paving the way for gains in both gold and the euro. This unusual divergence signals growing market sensitivity to monetary policy expectations rather than immediate macro data performance.
Below is an in-depth look at the main events from the financial markets and what they mean for traders and investors around the globe.
US Macro Data Beats Forecasts, But Dollar Declines
Monday brought in a string of US economic indicators that exceeded expectations:
– Retail sales for May increased by 0.3%, outperforming a consensus forecast of 0.2%.
– The control group, a measure that feeds directly into GDP calculations, rose by 0.4%, slightly above projections.
– Industrial production for May climbed 0.9% against the expected 0.3%. Additionally, April’s prior reading was revised upward from 0.0% to 0.4%.
– Manufacturing production rose sharply by 0.9%, which beat the 0.3% forecast.
In usual market conditions, this suite of data would lead to stronger support for the US dollar, as upbeat metrics improve the case for tighter monetary policy or reduce the urgency for rate cuts. However, the dollar actually weakened following the release.
Interpretations from this response point to a shift in trader sentiment. More market participants are focusing on the fact that, despite solid economic performance, the Federal Reserve remains on a slow path toward rate reductions. Rather than viewing robust economic indicators as a precursor for rate hikes, the market is now interpreting them as a confirmation that the Fed can afford to stay patient and hold rates steady before easing in a controlled manner.
EUR/USD Pushes Higher
A weaker dollar allowed the EUR/USD currency pair to extend its rebound:
– The currency pair rose steadily throughout Monday’s trading session.
– After bottoming near 1.0670 in previous sessions, EUR/USD has since recovered well, with resistance levels around 1.0750 coming into view.
– The euro gained strength despite lingering political uncertainty after French President Emmanuel Macron called for snap legislative elections.
While political instability in France could have pressured the euro, the dollar’s decline overshadowed those concerns, enabling the pair to recover. A broader market reassessment of Federal Reserve policy direction, along with some optimism that political chaos in the European Union may not escalate quickly, helped ease investor fears.
Gold Reaches Two-Week High
Gold continues to benefit from lower US yields and expectations of dovish central bank policies:
– Spot gold rose to levels around $2,320 per ounce, marking its highest price in two weeks.
– The price of gold was up by over 1.3% on the day at one point, with investors favoring safe-haven assets amid ongoing global uncertainties.
– Real yields in the US retreated, providing positive tailwinds for bullion.
Some of gold’s buying momentum can be attributed to geopolitical jitters and political uncertainties, particularly across parts of Europe. Market participants also viewed Powell’s recent comments, along with economic report releases, as signals that a dovish tilt may still be possible by year-end.
Market responses to the economic data suggest that gold may remain a favored asset among those betting on policy easing and lower yields. The metal’s resilience reinforces its role as a hedge against inflation, political instability, and central bank experimentation.
Stock Indices Close Lower As Risk Sentiment Wavers
Unlike gold and the euro, US equity benchmarks failed to capitalize on the macro data:
– The S&P 500 and Nasdaq finished slightly lower after reaching all-time highs earlier in the session.
– Tech stocks struggled to retain momentum, suggesting investor concerns about valuations and interest rate policy.
– Defensive sectors, including utilities and consumer staples, outperformed.
Despite jumps in retail and industrial production, equities moved
Read more on EUR/USD trading.