US Dollar retreats a touch as traders take profit in the wake of PCE and Durable data dump

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Gold dips despite Fed’s rate cut expectations, geopolitical tensions – Crypto News

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3 years ago

December 20, 2023

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Gold price struggles for a direction ahead of US core PCE price index data.
Fed Bostic sees no urgency for interest-rate cuts amid sheer strength in the US economy.
Fed Barkin remains data-dependent for rate cuts in 2024.

Gold price (XAU/USD) slips marginally below $2,040 ahead of the United States core Personal Consumption Expenditure price index (PCE) data for November, which will be released on Friday. The underlying inflation data is expected to soften further amid higher interest rates by the Federal Reserve (Fed).

Despite warnings from Fed policymakers that the central bank is currently focusing on keeping interest rates restrictive to ensure a return of inflation to 2%, investors lean toward investing in Gold due to optimism over rate cuts in 2024. Contrary to the median projection of three rate cuts by the Fed in its monetary policy announcement last week, Atlanta Fed Bank President Raphael Bostic sees only two rate cuts.

Daily Digest Market Movers: Gold price eases as US Dollar recovers

Gold price faces nominal sell-off near 15-day high around $2,040.00. The broader appeal remains upbeat as expectations of rate cuts by the Federal Reserve in 2024 is outplaying the stance of keeping interest rates restrictive until price stability is ensured.
The precious metal remains broadly strong despite the fact that Fed policymakers are playing down expectations of early rate cuts amid resilience in the United States economy.
The majority of Fed policymakers have commented that the Fed is focused on bringing down inflation to 2% rather than rate cuts in 2024.
Atlanta Fed Bank President Raphael Bostic said on Monday that there is no urgency for the central bank to lower borrowing costs. The priority of the Fed is to that inflation retreats to 2% as sheer strength in the US economy could delay progress in abating price pressures.
Bostic added that rate cuts would be required in advance of underlying inflation returning to 2% to avoid any unnecessary blow in employment numbers. Bostic reiterated on Tuesday that he expects two rate cuts in 2024.
As per the CME Fedwatch tool, market participants see almost a 70% chance in favour of a first rate cut by 25 basis points (bps) in March. The likelihood of a second rate cut in May is at 60%.
On the contrary, Richmond Fed Bank President Thomas Barkin said that rate cuts depend on how the economy performs in 2024. While asked about economic prospects, Barkin commented that the economy is well-positioned with easing inflation and a steady Unemployment Rate.
The US Dollar Index (DXY) found intermediate support near 102.00 after failing to extend recovery above 102.60 as rate cut expectations have dampened its fundamentals.
This week, investors will focus on the core PCE price index data for November, which is scheduled for Friday.
As per the consensus, monthly core PCE data is seen growing at a steady pace of 0.2%. On an annual basis, the Fed’s preferred inflation tool is expected to decline to 3.3% against the former reading of 3.5%.
Apart from the Fed’s preferred inflation gauge, investors will focus on the US Durable Goods Orders data for November. Investors expect the demand for core goods grew by 2.2% against 5.4% fall in October.
Meanwhile, geopolitical tensions between Israel and Palestine have started again, which would infuse some strength in bullions.
United Nations Security Council is in talks for a ceasefire in Gaza to deliver humanitarian aid to civilians.

Technical Analysis: Gold price skids below $2,040

Gold price faces selling pressure but remains inside Tuesday’s trading range as investors await the Fed’s preferred inflation gauge for further action. The broader appeal for Gold is bullish as its price is confidently sustaining above the 20-day and 50-day Exponential Moving Averages (EMAs). Momentum oscillators, namely the Relative Strength Index (RSI) (14), is hovering near 60.00. A decisive break above the same would trigger a bullish momentum.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing 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 may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the 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 may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

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