Gold prices make an effort to reverse a two-day losing streak, inching higher to approximately $1,910 per troy ounce during the Asian session on Thursday, driven by the latest Consumer Price Index (CPI) data release in the United States (US).
The US Consumer Price Index (CPI) (YoY) exceeded expectations, climbing to 3.7% from the previous rate of 3.2%, surpassing the market’s projected 3.6% for August. Moreover, the monthly core CPI demonstrated improvement, rising to 0.3% from the prior 0.2% for the same month. This positive change came as a surprise, as market consensus had anticipated it to remain unchanged.
However, the annual core inflation rate aligned with expectations, remaining steady at 4.3%, consistent with the previous reading of 4.7%.
These figures suggest that while overall inflation may be easing, the Core Consumer Price Index (CPI) remains relatively stable. Initially, this data led to an increase in US Treasury yields, which were subsequently retraced. Improved market sentiment followed as investors began to believe that the US Federal Reserve (Fed) would maintain a dovish stance in its upcoming September meeting.
This dovish sentiment has lent support to Gold prices, as investors seek alternative safe-haven assets. Consequently, the US Dollar (USD) has weakened.
The CME FedWatch Tool indicates that the Fed is likely to maintain interest rates within the range of 5.25% to 5.50% at the September meeting, suggesting that market participants increasingly anticipate a more dovish Fed stance in the short term.
Despite reduced odds of a September interest rate hike, there is a 40% probability of a 25 basis points (bps) rate increase by the Federal Reserve (Fed) in November. This shift in market sentiment suggests that there is growing expectation of a monetary tightening policy later in the year, possibly in November. Investors are exercising caution in light of this potential move, as they assess the evolving economic landscape and Fed communications.
While an immediate rate hike in September may not be on the horizon, investors are looking ahead to the possibility of such an action in the near future, likely in November or beyond. This reflects the ongoing uncertainty and evolving expectations surrounding Fed policy decisions.
The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against a basket of six other major currencies, is retracing some of its gains from the previous trading session. It is currently trading lower around 104.60 at the time of writing. This suggests that the US Dollar may be encountering selling pressure or experiencing a corrective pullback after its recent strength.
Market participants are currently focusing their attention on upcoming data releases in the United States (US), including the Core Producer Price Index (PPI) and August Retail Sales figures. These economic indicators will offer valuable insights into the state of economic activity in the US and are likely to impact trading decisions and market sentiment, particularly concerning the Greenback.