Euro declined in European trade against the pound on Tuesday, resuming losses after a two-day hiatus, and almost touching a five-week trough, amid renewed expectations of a widening interest rate gap between Europe and the UK, in the favor of UK. 

The European Central Bank remained split on the decision of interest rates at the September meeting, waiting for more European data to gauge the likely path ahead. 

EUR/USD fell 0.15% to 0.8529, with a session-high at 0.8545, after rising 0.1% yesterday, the second profit in a row, away from a five-week low at 0.8521. 

European Rates

The ECB recently linked any potential interest rate hikes in the future to upcoming data in the euro zone.

Investors await important European services and manufacturing data for August, in addition to a speech by ECB President Christine Lagarde at the Jackson Hall global forum.

UK Rates

Recent strong UK inflation data showcased the continuous inflationary pressures on Bank of England and the need to continue tightening monetary policies.

Such data bolstered the case for a 0.25% UK interest rate hike at the Bank of England's next September meeting. 

Interest Rate Gap

The current gap in interest rates between Europe and the UK stands at 100 basis points, and could increase to 125 basis points by the end of next month, in favor of Britain. 

US 10-year treasury yields surged on Tuesday for a second session, hitting a 16-year high on prospects of additional US interest rate hikes this year. 

Odds are also strong for US interest  rates to remain high for most of 2024 as the US economy proves flexible and strong while inflation remains off target.

Yields 

US 10-year treasury yields rose 0.4% to 4.360%, the highest since November 2007, with a session-low at 4.334%, after rising 2% on Monday, the seventh profit in eight days amid prospects US interest rates will remain high for longer. 

The Fed

The Federal Reserve's recent meeting minutes showcased the possibility of another interest rate hike this year depending on conditions.

The US economy continues to prove its strength and flexibility through solid data, which might pave the way for even more policy tightening. 

US Rates

Pricing for a 0.25% interest rate hike by the Fed at the September meeting rose from 10% to 16%, while odds for a 0.25% rate hike at the November meeting rose to 45%. 

A majority of economists polled by Reuters expect the Federal Reserve to raise interest rates to hike interest rates again this year.

Many investors hoped the recent interest rate in July would be the last but it might not be. 

Powell 

Fed Chair Jerome Powell is preparing to speak later this week at the Jackson Hall global forum alongside other global central bank governors.

Markets await important clues on the future path of policies and interest rates in the US. 

Gold prices rose in European trade for a second session off five-week lows, trading once again above $1,900 as the dollar fell against a basket of major rivals.

Investors now await important clues on the future of US monetary policies, with a batch of important US data coming up, in addition to Fed Chair Jerome Powell's speech at Jackson Hall.

Prices Today

Gold prices rose 0.4% to $1,901 an ounce, with a session-low at $1,893, after rising 0.3% yesterday, the first profit in six days away from a five-week trough at $1,884.

The Dollar

The dollar index fell 0.3% on Tuesday on track for the second loss in a row away from a two-month high at 103.68 against a basket of major rivals.

As dollar loses ground, dollar-denominated gold futures become cheaper to holders of other currencies. 

Investors are shunning new positions on the dollar ahead of more clues on the future path of US monetary policies.

Data

Later today, important data on the US housing sector will be released, while tomorrow, data on the manufacturing and services sectors for August will be released as well.

Fed Remarks

Also starting today, several Fed policymakers will discuss inflation developments and the future path of monetary tightening.

Powell

The most important event this week is Fed Chair Jerome Powell's speech on Friday at Jackson Hall alongside major global central bank governors. 

The SPDR

Gold holdings at the SPDR Gold Trust fell 0.87 tonnes yesterday to a total of 889.23 tonnes. 

Euro rose in European trade on Tuesday against a basket of major rivals, rebounding for the second session off six-week lows against US dollar on expectations the ECB might raise interest rates at the September meeting.

The greenback carried on its losses on profit-taking ahead of more clues about the Federal Reserve's upcoming moves.

EUR/USD rose 0.2% to 1.0917, with a session-low at 1.0890, after rising 0.3% yesterday, the first profit in seven days on short-covering from six-week lows at 1.0845.

European Rates

Germany's central bank warned that inflation might remain above targets for an extended period of time, as wages remain high and labor conditions tighten.

Such statements bolster the case the ECB will raise interest rates once more at the September meeting to reign in inflation.

The ECB recently linked any potential interest rate hikes in the future to upcoming data in the euro zone.

Investors await important European services and manufacturing data for August, in addition to a speech by ECB President Christine Lagarde at the Jackson Hall global forum.

The Index

The dollar index fell 0.2% on Tuesday, the second loss in a row off two-month highs at 103.68 against a basket of major rivals. 

Investors also await more clues about the future policy steps by the Federal Reserve, through statements by Fed officials, and especially Fed Chair Jerome Powell on Friday at Jackson Hall.