Skip to content Skip to footer

Gold price falls as bets supporting rate cuts in March ease after US CPI data

Gold price (XAU/USD) turns volatile as United States Bureau of Labor Statistics (BLS) has reported hotter-than-projected Consumer Price Index (CPI) data for December. Annual headline inflation accelerated to 3.4% against expectations of 3.2% and the former reading of 3.1%. In the same period, the core CPI that excludes volatile food and oil prices at 3.9% remained higher than expectations of 3.8% but was lower than the prior release of 4.0%. Monthly headline and core inflation grew by 0.3%. The impact of a slightly higher inflation data would be nominal on bets in favor of rate cuts from the Federal Reserve (Fed) in March.

The appeal for bullions may fade slightly as investors’ confidence over the Fed reducing interest rates in March has waned a bit after a higher inflation data. Investors have been ignoring that Fed policymakers continue to lean towards keeping a restrictive stance for a longer period, denying the likelihood of early rate cuts.Atlanta Fed Bank President Raphael Bostic and New York Fed President John Williams supported the idea of keeping interest rates higher as they said more work is needed to get inflation back to the 2% target. John Williams said it would only be appropriate to unwind the current restrictive monetary policy stance when the Fed is confident that inflation is moving toward 2% on a sustained basis.

Daily digest market movers: Gold price turns volatile after higher US CPI report

Gold price trades volatile around $2,030 as the United States inflation data for December remains higher-than-projected.
Higher inflation data will offer an argument to Fed policymakers to keep interest rates high for the entire first half of this year.
The Federal Reserve (Fed) is highly expected to keep interest rates unchanged in the range of 5.25%-5.50% in January’s monetary policy meeting for the fourth time in a row. Guidance about upcoming interest rate cuts will be of utmost importance.

In the latest projections, Fed policymakers said interest rates could come down by 75 basis points (bps) this year.

Bets supporting an interest rate cut by the Fed in March have declined as the US inflation report has comes in hotter than projected.
As per the CME Fedwatch tool, chances in favour of a 25 bp rate cut in March have dropped to 60%.
Projections for the first cut in interest rates could shift to May’s monetary policy meeting as US labor market conditions are still upbeat.
Going forward, investors will shift focus towards the Producer Price Index (PPI) data for December, which will be published on Friday.
On US-China relations, US Treasury Secretary Janet Yellen said former Republican President Donald Trump’s plan to levy universal 10% tariffs on all imports would escalate costs for consumers. She added that a review of tariffs on Chinese imports is highly needed.

Source: Fxstreet