Safe-haven flows return, focus shifts to US PCE inflation data

Safe-haven flows dominate the financial markets early Thursday and major European equity indexes suffer heavy losses. The US Dollar Index stays relatively quiet near 105.00 following the two-day rally. The US Bureau of Economic Analysis will release the Personal Consumption Expenditures (PCE) Price Index data, the Fed’s preferred gauge of inflation, alongside Personal Spending and Personal Income figures for May. Unemployment data for the euro area will be featured in the European economic docket before Statistics Canada releases monthly GDP data for April in the early American session.

While speaking at the European Central Bank’s (ECB) Forum on Central Banking on Wednesday, FOMC Chairman Jerome Powell reiterated that the US economy could withstand the policy mover. Powell further noted that the dollar strength was “disinflationary at the margins.” At the same panel, ECB President Lagarde refrained from committing to a specific rate hike size in July. Finally, Bank of England (BOE) Governor Andrew Bailey acknowledged that they were being hit by a “very large income shock.” Following this event, the dollar continued to gather strength against its rivals.

During the Asian trading hours, the data from China showed that the business activity in the private sector expanded in June following April and May’s contraction. This development, however, failed to help the market mood improve. As of writing, US stock index futures were down between 1.2% and 1.5%.

EUR/USD broke below 1.0500 on Wednesday and was last seen trading at its lowest level in two weeks at around 1.0450.

GBP/USD lost 60 pips on Wednesday before going into a consolidation phase above 1.2100 early Thursday. Earlier in the day, the UK’s Office for National Statistics reported that the GDP in the first quarter grew at an annualized pace of 8.7%. This print matched the flash estimate and the market expectation.

Fueled by the broad-based dollar strength, USD/JPY climbed to fresh multi-decade highs above 137.01. Early Thursday, the JPY seems to be finding demand as a safe haven, causing the pair to retreat toward 136.00.

Gold failed to take advantage of falling US Treasury bond yields and closed below $1,820 on Wednesday. XAU/USD stays on the back foot and edges lower toward $1,810 in the European morning.

Bitcoin came under heavy selling pressure and broke below $20,000 early Thursday. Ethereum is down more than 4% on the day so far but continues to trade above $1,000 for the time being.

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