Gold holds onto recovery despite uncertainty over Fed’s rate-cut timing – Crypto News – Crypto News
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XAU/USD extended losses beyond $1750 as Jackson Hole looms XAU/USD extended losses beyond $1750 as Jackson Hole looms

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Gold holds onto recovery despite uncertainty over Fed’s rate-cut timing – Crypto News

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  • Gold price consolidates in a tight range near $2,030 while the US Dollar falls from a seven-week high.
  • Fed policymakers abstain from offering timing for rate cuts.
  • Considering the upbeat labor market, the Fed is expected to achieve a soft landing.

Gold price (XAU/USD) is stuck in a tight range, slightly above $2,030 in the London session on Wednesday. Gold, a non-yielding asset, is both supported and capped by the fact that whilst the Federal Reserve is poised to make rate cuts, uncertainty remains over their timing. Fed policymakers are holding back from unwinding the restrictive monetary policy stance too aggressively due to the current strength in labor demand and upbeat household spending.

The US Dollar Index (DXY) and bond yields, which are negatively correlated to Gold price, have eased despite the fact the Fed is unlikely to cut interest rates in March – something that would usually weigh on the Gold. Even expectations for a rate cut in May have decreased significantly as the Fed lacks evidence that inflation will slow sustainably to its 2% target. Fed policymakers are worried premature action on interest rates could flare up price pressures again, cautioning that the last mile in taming price pressures is always a difficult one.

Going forward, speeches from Fed policymakers’ Richmond Federal Reserve Bank Thomas Barkin and Federal Reserve Governor Michelle Bowman will be of utmost importance.

Daily Digest Market Movers: Gold price clings to recovery while US Dollar eases, yields correct

  • Gold price consolidates in a narrow range around $2,030 as investors await fresh guidance from Federal Reserve policymakers over inflation and interest rates.
  • The economic indicators for January released so far have indicated that the United States is outperforming expectations, which signifies a persistent inflation outlook.
  • The US economic calendar is light this week, therefore investors are focusing on speeches from Fed policymakers for fresh cues about when the central bank will begin reducing interest rates.
  • The speech from Cleveland Federal Reserve Bank President Loretta Mester delivered on Tuesday indicated that deepening uncertainty over inflation is not allowing policymakers to offer any timing for rate cuts.
  • Loretta Mester said a robust labor market and resilient household spending have allowed the Fed to keep interest rates restrictive, giving them time to gather evidence about inflation declining sustainably to the 2% target.
  • Mester added that the Fed is looking to bring down interest rates, and the forecast of three rate cuts this year is intact.
  • Philadelphia Federal Reserve Bank President Patrick Harker didn’t provide any cues about easy policy in his prepared remarks. However, he said the Fed is making “real progress” in bringing inflation down to 2%, and the path to a “soft landing” is very much in sight. A soft landing is when a central bank manages to achieve price stability without triggering a recession.

Technical Analysis: Gold price eyes stability above $2,030

Gold price trades sideways above $2,030 amid an absence of major economic events this week, while speeches from Fed policymakers will keep investors busy. The precious metal turns sideways after a sharp recovery from a weekly low of around $2,015. The yellow metal oscillates inside Monday’s trading range for the second straight session, which indicates a sharp volatility contraction. The asset is hovering near the 20-day Exponential Moving Average (EMA), which trades around $2,033.

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.

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