Sterling rose in European trade on Monday for a second session against yen, almost touching eight-year peak on concerns about a widening policy gap between the UK and Japan.

Sterling spiked in June after Bank of England surprised the markets with a 0.5% rate hike, passing expectations of a 0.25% rate hike.

Otherwise, Bank of Japan has maintained its ultra easy monetary policies to support the world's third largest economy. 

GBP/JPY rose 0.45% to 183.75, with a session-low at 182.92, after rising 0.4% on Friday, the first profit in three days, marking eight-year highs at 183.87. 

Sterling spiked 5.7% against yen in June, the sixth monthly profit in a row, and the longest such streak of monthly gains since 2012. 

Interest Rate Gap

The gap of interest rates between Japan and the UK stands at over 500 basis points and on its way to get bigger as BoE continues to tighten policies and raise interest rates.

Bank of England

Bank of England shocked the markets with a 0.5% rate hike last month to 5%, the highest since 2008.

Such an aggressive step is taken to bring inflation back from its 15-year peak. 

Bank of England asserted it continues to monitor consumer prices and the labor conditions, adding that it's prepared to more policy tightening if inflation proved stubborn. 

Bank of England Governor Andrew Bailey said recently that interest rates could get even higher in the UK to control prices, potentially around 6%. 

BoJ

Conversely, Bank of Japan voted to hold policies unchanged in June as expected, with interest rates held at minus 0.1%. 

BoJ decided to maintain the 10-year government bond yield target unchanged at zero percent.

BoJ said it's appropriate to hold interest rates unchanged to support growth and recovery. 

Gold prices declined in European trade, resuming losses after a two-day hiatus and moving towards $1,900 once more as dollar strengthens against major rivals.

Despite disappointing US consumer spending data, markets are still fully pricing in a 0.25% Fed rate hike in July.

Gold Prices 

Gold prices fell 0.5% to $1,910 an ounce, with a session-high at $1,920, after rising 0.6% on Friday, the second profit in a row away from three-month low at $1,893 an ounce. 

Gold prices lost 2.5% in the second quarter, the first quarterly loss in three, away from a record high at $2,081, amid current pressure from higher global interest rates.

Dollar

The dollar index rose 0.35%% on Monday, resuming gains and almost touching two-week highs at 103.54 against a basket of major rivals.

Markets are almost fully pricing in a 0.25% Fed rate hike at the July meeting. 

It comes after a string of strong US data that showed the resilience of the economy, despite policy tightening efforts by the Federal Reserve. 

US Rates

Markets are pricing in an 88% chance of a 0.25% Fed rate hike at the July policy meeting.

Data

Investors await important US manufacturing data for June, important for calculating the odds of Fed interest rate hikes. 

The SPDR 

Gold holdings at the SPDR Gold Trust fell 2.6 tones on Friday, the second decline in a row, to a total of 921.9 tones, the lowest since March 15. 

Swiss franc fell in European trade against dollar, resuming losses and almost hitting two-week lows after Swiss inflation data showed consumer prices slowed down to 17-month trough.

As inflationary pressures dissipate, the Swiss National Bank might wind down its policy tightening efforts.

Dollar rose 0.4% against the franc to 0.8984, with a session-low at 0.8937.

The franc closed Friday up 0.5% against dollar, the first profit in three days away from a two-week low at 0.9016. 

Franc gained ground following weak US consumer spending data, which showed that US inflation has calmed down even further in May.

Swiss Inflation

Swiss consumer prices rose 1.8% in June, the fourth monthly decline in a row, and the lowest since January 2022, below 2.2% in the previous reading. 

Such data showcases the success of recent policy tightening efforts by the SNB and casts doubt on the odds for future interest rate hikes.

The SNB

The Swiss National Bank raised interest rates by 0.25% in June to 1.75%, the highest since 2008 to combat inflation.

And indeed, inflation has swooned to 1.8% in June in a sign of success for the monetary control efforts.

The SNB is focused on bolstering the franc's standing to bring inflation down in the short term. 

Palladium prices rose on Friday as the dollar index declined against most major rivals despite earlier weak Chinese data.

Higher Supplies 

The Russian Nornickel company expects the palladium market to undergo an oversupply of 300 thousand ounces in 2024, compared to a deficit of 200 thousand ounces in 2023.

Nornickel wasn't directly targeted by western sanctions, and alone it produces 40% of global palladium supplies, used to reduce exhaust fumes in cars.

Nornickel said that the automotive industry, which utilizes 80% of global palladium supplies, is slowly recovering after Covid 19 and the supply shocks of 2020 and 2021, with demand expected to grow on the metal by 1% this year.

The major corporations, which experienced a drop of 16% in its net profits this year, expects a global palladium deficit of 300 thousand ounces in 2023.

As for nickel, it expects a surplus of 180 thousand tones in 2024.

Chinese Data

Earlier government data showed factory manufacturing tumbled in June for the third straight month.

Otherwise, the dollar index fell 0.4% as of 16:43 GMT to 102.9, with a session-high at 103.5, and a low at 102.7. 

Palladium September futures rose 0.1% as of 16:44 GMT to $1,229 an ounce.