Gold price soars as investors see Fed’s July hike as final in current cycle

NEW YORK (July 27) Gold price (XAU/USD) recovers firmly as investors hope that the Federal Reserve (Fed) pushed interest rates higher for the final time this year on Wednesday. The precious metal remains on the buying list on Wednesday after the Fed raised interest rates by 25 basis points (bps) to 5.25%-5.50%, as expected by market participants. Also, the Fed delivered less-hawkish guidance for the September meeting and passed on responsibility for any further action on economic data.

The US Dollar Index (DXY) is going through tough times as investors hope that the United States central bank has put the last nail in the coffin. Markets see the interest-rate hike in July as the last one in the current aggressive policy tightening spell, and expect that the Fed will keep rates steady ahead. Adding to that, receded fears of a recession in the United States acts as the cherry on the cake for US Dollar bears.

Daily Digest Market Movers: Gold price accelerates as Fed interest rates look to have peaked

• Gold price rebounds after a corrective move prompted by less-hawkish guidance from the Federal Reserve in its July monetary policy decision announced on Wednesday.
• The Fed raised interest rates by 25 bps to 5.25%-5.50% as expected by market participants.
• About interest rate guidance, Fed Chair Jerome Powell left the door open for more interest-rate hikes if economic indicators remain supportive.
• Less-hawkish monetary policy from the Fed has improved the risk appetite of market participants.
• The US Dollar Index (DXY) retreats after a less-confident pullback move to near the 101.00 resistance level as investors hope that interest rates by Fed are peaked for this year.
• Also, fears of a recession in the United States have receded significantly as Fed Chair Jerome confirmed the central bank's staff no longer expects an economic downturn.
• The odds of a recession in the US economy have faded meaningfully due to the tight labor market.
• US firms are consistently adding fresh talent even at higher wages to offset labor shortages. This indicates that the economy is resilient despite tight credit conditions and aggressive policy tightening.
• Fears of a rebound in consumer inflation expectations are increasing as a tight labor market could support consumer spending.
• After Fed policy decisions, investors are awaiting Gross Domestic Product (GDP) figures for the second quarter, June’s Durable Goods Orders, and core Personal Consumption Expenditure (PCE) data.
• As per the preliminary report, US GDP is expected to expand at a pace of 1.8%, slower than the 2.0% pace recorded in the previous quarter.
• The Congressional Budget Office (CBO) revised its forecast for US economic growth for 2023 substantially upward to 0.9% compared with the 0.1% forecast released in February. Economic prospects were lifted in the face of a stronger-than-expected labor market, Reuters reported.
• Meanwhile, Durable Goods Orders for June are expected to expand by 1.0% on month, easing from the 1.8% increase recorded in May. Decent momentum in demand for durable goods might keep core inflation stubborn ahead.
• Core PCE data, used by the Fed to gauge inflation, is expected to drop to 4.2% in June vs. the 4.6% figure released in May. PCE data will be published on Friday.

Technical Analysis: Gold price approaches $2,000

Gold price shifts into a bullish trajectory after a breakout of the consolidation formed in a range between $1,955 and $1,968. The precious metal is swiftly approaching its monthly high of $1,987.35 as investors expect that the Fed has ended the policy-tightening spell for the year. The yellow metal is expected to recapture the psychological resistance of $2,000.00.

Gold price tests the 50% Fibonacci retracement (plotted from May 4 high at $2,067.00 to June 29 low at $1,893) at $1,980.00. Momentum oscillators have climbed into bullish territory, indicating strength in the upside momentum.

FXStreet