Gold bounces from weekly low on softer US Dollar, fading September Fed hike bets
LONDON (August 14) Gold (XAU/USD) rebounds on Friday after opening the day in negative territory and falling to a fresh weekly low of $4,311. At the time of writing, the precious metal trades around $4,350, supported by a softer US Dollar (USD) and fading expectations of an imminent Federal Reserve (Fed) interest rate hike. The metal, however, remains below the two-month high of $4,449 touched on Thursday.
This week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) releases showed that inflationary pressures are gradually easing. Meanwhile, weaker-than-expected July Nonfarm Payrolls (NFP) and sharp downward revisions to the previous two months' figures cast doubt on the recent strength of the labour market.
The softer run of US economic data has pushed front-end Treasury yields sharply lower and kept the US Dollar Index (DXY) pressured below 100, as traders trim bets on a September Fed rate hike. Attention now turns to US Retail Sales and preliminary Michigan Consumer Sentiment data due later on Friday.
Analysts at MUFG highlight that "the slowdown in private employment and wage growth in recent months alongside limited evidence of higher energy prices spilling over into core inflation since the US-Iran conflict started is providing more leeway for the Fed to leave rates on hold."
According to the CME FedWatch Tool, traders are now pricing in around a 70% chance that the Fed will keep borrowing costs unchanged in September.
This creates a supportive near-term backdrop for the non-yielding metal, but the inflation outlook is far from settled. Inflation is still running above the Fed’s 2% target, while the impact of the energy shock has not fully faded. Oil prices remain elevated as uncertainty over the reopening of the Strait of Hormuz drags on.
Longer-dated US Treasury yields also remain high, as persistent inflation risks leave the possibility of future Fed rate hikes on the table. This could limit Gold’s upside and keep buyers cautious about chasing the metal higher after its recent advance.
FXStreet
