Home Forex Gold rally stalls as US dollar recovers as Fed pushes back on rate cut hopes

Gold rally stalls as US dollar recovers as Fed pushes back on rate cut hopes

by SuperiorInvest


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  • The price of gold is consolidating after a two-day sell-off amid a light economic calendar.
  • The US dollar is down slightly, but its broader appeal is bullish amid a strong performance by the US economy.
  • A strong order book for the US manufacturing and services sectors set a positive tone for 2024.

The price of gold (XAU/USD) is struggling to find direction in Tuesday’s European session due to a lack of data drivers. economic calendar it’s light in the united states this week. A two-day selloff in precious metals paused for a moment as the various Federal Reserves (Fed) lined up to give their outlook on interest rates. Rally v American dollar The index (DXY) has paused, but further growth is more likely Fed policymakers have consistently denied the need for any early rate cuts.

The chances of an aggressive rate cut by the Fed have narrowed sharply as the US economy performs better. Fed policymakers have warned that an early decision to cut rates could boost demand and stimulate the economy, slowing inflation’s progress toward its 2% target.

Daily roundup of market moves: Gold price trades sideways as Fed spokesmen line up

  • The gold price is finding selling pressure while trying to extend the recovery above the crucial $2,030 resistance.
  • The precious metal fell as Federal Reserve officials played down expectations of aggressive rate cuts due to resilient domestic growth and a stubborn inflation outlook.
  • CME’s Fedwatch tool shows a March rate cut is unlikely. At the May policy meeting, bets on a 25 basis point (bps) interest rate cut fell to 55%.
  • Minneapolis Federal Reserve Bank President Neel Kashkari said Monday that the lower risk for U.S. economic woes gave the central bank time to reconsider cutting rates.
  • Rising employment levels and a robust economic outlook are steadily raising hopes for a “soft landing” by the Fed.
  • After robust labor market and manufacturing PMI data for January, the services PMI also beat expectations. The services PMI, the services sector that makes up two-thirds of the U.S. economy, rose to 53.4, versus expectations of 52.0 and the previous reading of 50.5.
  • A sub-index measuring new orders for services businesses rose to 55.0 from expectations of 52.8, suggesting a strong order book for 2024.
  • On the geopolitical front, hopes of a truce between Israel and Palestine in Gaza could put more pressure on the price of gold.
  • US Secretary of State Antony Blinken and Saudi Arabia’s crown prince discussed “regional coordination” in ending the war in Gaza and plans for the strip after the fighting ends, CNN reported.

Technical Analysis: The price of gold is consolidating near $2,025

The price of gold is oscillating in a tight range around $2,025 on Tuesday. The precious metal remains inside Monday’s trading range, suggesting investors are anticipating new economic impetus for further guidance. The 50-day EMA at $2,021 continues to provide support. More broadly, the gold price is expected to remain well supported above the $2,000 psychological cushion. Meanwhile, the 14-time Relative Strength Index (RSI) suggests lackluster performance going forward, oscillating in the 40.00-60.00 range.

Frequently asked questions about the Fed

Monetary policy in the US is shaped by the Federal Reserve System (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its primary tool to achieve these goals is the adjustment of interest rates.
When prices rise too fast and inflation is above the Fed’s 2% target, it raises interest rates, which raises borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates to encourage lending, which weighs on the dollar.

The Federal Reserve (Fed) holds eight policy meetings a year at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC consists of twelve Fed officials—seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional reserve bank presidents who serve one-year terms on a rotating basis. .

In extreme situations, the Federal Reserve can resort to quantitative easing (QE) policy. QE is the process by which the Fed substantially increases the flow of credit in a troubled financial system.
It is a non-standard policy measure used during crises or extremely low inflation. It was the Fed’s weapon during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, where the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds maturing into buying new bonds. It is usually positive for the value of the US dollar.

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