Gold price juggles ahead of Fed’s preferred inflation gauge
Daily Digest Market Movers:
- Gold price remains inside the woods as the upside was capped amid uncertainty ahead of the United States core PCE price index data for December. While the downside is being supported because of geopolitical tensions and the chance of rate-cuts by the Federal Reserve this year.
- The Fed’s preferred inflation gauge is forecast to rise by 0.2% against the former reading of 0.1%. The annual underlying inflation data is set to slow to 3% versus 3.2% in November.
- The US economy expanded at a robust pace of 3.3% in the final quarter of 2023 while market participants projected a slower growth rate of 2.0%. This has uplifted the economic outlook, which could keep price pressures elevated.
- US Treasury Secretary Janet Yellen said surprisingly strong economic growth came from higher productivity and robust consumer spending without escalating inflation risks.
- A stubborn core PCE price index report could combine with an optimistic economic outlook to propel upside risks to price pressures. This would allow Fed policymakers to continue to maintain a hawkish interest rate stance for the first six months of 2024.
- After the release of the Fed’s preferred inflation gauge, market participants will shift their focus towards the Fed’s first monetary policy of 2024, which will be announced next week.
- The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth time in a row. Investors will keenly focus on the timing of when the Fed will start reducing interest rates.
- The CME Fedwatch tool is showing that the chances in favour of a 25-basis point (bp) rate cut in March are at 48%. This indicates that traders are seeing the Fed reducing interest rates from May.
- Till now, Fed policymakers have been considering expectations of rate-cuts from March as “premature” due to resilient US economic prospects and stubborn inflationary pressures.
- Fed policymakers have been warning that rate cuts at this stage would be premature, which could lead to a surge in overall demand and dampen efforts made to bring down core inflation to its current 3.9% level.
- The US Dollar Index (DXY) holds onto recovery inspired by upbeat US Q4 GDP data but struggles to print a fresh high near 104.00.
