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Forex Flash: Is the fall of gold affecting FX markets? – UBS

FXstreet.com (Barcelona) - The sharp moves in gold markets in the last few trading sessions are starting to spill over into FX. The market is presently at a loss over the exact drivers, but more important at whether the move matters for other positions, which may or may not share a close price correlation with the yellow metal.

According to Research Analyst Gareth Berry at UBS, “Our gold strategists note that it is hard to pin the move on one single factor, but clearly weakening data is playing a role. As broader asset classes are taking note of this interpretation, prices are responding accordingly.”

Nonetheless, we stress that a handful of days' harmonized price action should not be taken as proof of causality. If anything, correlations between gold and other traditional growth/inflation indicators have been diverging, and broader risk appetite is not reflecting a macro condition the move in gold is potentially pricing in. “We see no reason to alter our fundamental views in G3 or risk currencies, but will watch shifts in correlations closely.” Berry adds.

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