Central Banks Tighten, Jobless Claims Rise, and Crude Slides

Central banks took center stage as the Bank of England (BOE) and Norges Bank surprises markets with more aggressive rate hikes than anticipated. Meanwhile, US weekly jobless claims reached a multi-year high, contributing to a defensive tone in the markets. Additionally, crude oil prices faced downward pressure amid rumors of a new Iran deal.

Key Factors for Today

• Central banks' continued tightening actions bolster dollar bids.
• US weekly jobless claims climb to the highest level in years.
• Crude oil prices slide approximately 4% below $70 per barrel on Iran deal rumors.
• Japan's core inflation reaches a 40-year high, while the yen struggles.
• The Australian dollar tumbles as traders seek the safety of the US dollar.

Market Movers

• BOE surprises with a 50 basis point hike, but the pound weakens.
• Jobless claims exceed expectations, putting downward pressure on gold prices.
• Crude oil prices decline amid speculation of a potential Iran deal.
• Japan's inflation data and manufacturing PMI impact the yen's performance.
• The Australian dollar faces selling pressure as traders flock to the US dollar.

Economic Calendar

• France Manufacturing and Services PMI
• Germany Manufacturing and Services PMI
• Euro Area Manufacturing and Services PMI
• S&P Global/CIPS Manufacturing and Services PMI
• Speech by Federal Reserve's James Bullard
• Speech by Federal Reserve's Raphael Bostic
• S&P Global Manufacturing and Services PMI
• Speech by Federal Reserve's Loretta Mester
• Speech by Federal Reserve's John Williams
• Bank of Japan's Summary of Opinions

BOE Hikes by 50bps, But Pound Falls

Contrary to most economists' expectations of a quarter-point hike, the Bank of England stunned markets by raising rates by 50 basis points. However, the subsequent weakness in the pound suggests that the markets had already priced in this aggressive move following Wednesday's CPI figures. Concerns over the UK's economic strength led to a drop in the longer end of the yield curve, resulting in weakness in sterling. Despite briefly trading as high as $1.2842, the pound closed Thursday at $1.2747, placing it under pressure. Support for the pound lies at $1.2661, while potential resistance can be found at $1.2771.

Jobless Claims at Highest Level since 2021

Weekly jobless claims in the US came in above expectations, remaining unchanged at 264,000 compared to the forecasted 260,000. Moreover, the previous week's figures were revised higher to a level not seen since October 2021. This unexpected increase, coupled with comments from Federal Reserve Chair Jerome Powell indicating a likelihood of two more rate hikes, prompted a defensive sentiment in the markets. Consequently, gold prices dropped to a three-month low of $1912 per ounce, with a further downside opening up to $1890 per ounce unless bulls manage to reclaim $1925 per ounce.

Crude Losses 4% on New Iran Deal Rumors

Reports circulated that the United States was still seeking a nuclear deal with Iran, outweighing an unexpected drawdown in Department of Energy (DOE) inventories of 3.8 million barrels compared to the expected unchanged level. Gasoline inventories grew by 0.5 million barrels, deviating from the forecasted decrease of 0.5 million barrels. Additionally, the weekly EIA natural gas inventories showed a build of 95 billion cubic feet, surpassing the anticipated range of 89-93 billion cubic feet. As a result, WTI crude oil prices slid 4% from a high of $72.40 per barrel to a low of $69.50 per barrel. The descent continued into early Friday, exposing a support level at $67.30 per barrel, while $70 per barrel now acts as a resistance level.

Japan Core Inflation Hits Highest since 1981

In Japan, May's headline Consumer Price Index (CPI) met expectations at 3.2%, a decrease from the prior month's 3.5%. However, core inflation, which excludes fresh food and energy, rose to 4.3%, surpassing the anticipated 4.2% and the previous month's 4.1%. On the other hand, June's preliminary Japan Manufacturing Purchasing Managers' Index (PMI) came in at 49.8, lower than the previous reading of 50.6, signaling a return to contraction territory after four months of upside momentum. Although services also experienced a decline, they remained in expansion for the eighth consecutive month. Consequently, Japanese Government Bond (JGB) yields fell to their lowest level since November 2022, pushing USD/JPY to a 7½ month high just above 143.00. The next significant resistance level is anticipated near 144.00, with support at 142.40.

Aussie Tumbles as Traders Seek Dollar Safety

Amid firmer US Treasury bond yields and major central bank rate hikes, traders flocked to the US dollar, exerting downward pressure on the Australian dollar against the greenback. Despite mixed manufacturing data, the Aussie dropped from 68 cents to a low of $0.6690 early Friday, representing a 1.50% loss. In the face of this decline, bulls will focus on the support level at $0.6680, while resistance may be encountered at $0.6740 on a potential recovery.