Gold price (XAU/USD) gains momentum to around $4,110 during the early Asian session on Friday. The precious metal edges higher as traders reduce their bets on interest rate hikes a day after Federal Reserve (Fed) Chair Kevin Warsh offered little clarity on policy.
On Wednesday, the US central bank decided to leave the interest rates unchanged in its current target range between 3.50% and 3.75%. During the press conference, Warsh pledged an unwavering commitment to bring inflation down, a message that left markets confused about just what he was prepared to do.
It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
Markets are now pricing in nearly a 63.4% probability of a US rate hike in September, down from about 77% before the July Fed meeting, according to the CME FedWatch tool.
Nonetheless, ongoing tensions in the Middle East might cap the upside for the yellow metal as it could push crude oil prices up and prompt central banks to hold rates at elevated levels for longer.
Bloomberg reported the Islamic Revolutionary Guard Corps (IRGC) said that it targeted US bases in Kuwait, Jordan and Bahrain after US forces bombed a building on Iran’s Qeshm Island. Iranian military added that the Strait of Hormuz would remain closed and that the “aggressor will be punished.”
Fed shifts focus to data as forward guidance is pared back
Commerzbank’s FX Research team notes that the Fed chair has reinforced the central bank’s data-dependent stance, “continu[ing] his efforts to reduce the Fed's reliance on forward guidance, arguing that markets should respond to incoming economic data rather than Fed signalling.” This recalibration of communication strategy is seen by Commerzbank as a key backdrop for recent market moves, with investors increasingly attuned to the evolving macro data rather than pre-set policy cues.
Comments
Log in or sign up to join the conversation.