Gold prices maintained their position around $1,930 during the early hours of the European trading session on Thursday, as investors turned their attention to forthcoming US data following the Federal Reserve’s policy rate decision.
The Federal Reserve, as expected, chose to keep the current benchmark policy rates at 5.5% during its meeting on Wednesday. However, it’s the Fed’s hawkish outlook on the trajectory of interest rates that has been applying downward pressure on the price of gold.
In line with the Federal Open Market Committee’s (FOMC) projection of slightly higher inflation compared to previous forecasts, it is widely anticipated that the central bank will pursue an additional rate hike in 2023. This unexpected revision in projected interest rates for 2024, from 4.6% to 5.1%, played a significant role in bolstering the US Dollar (USD).
The US Dollar Index (DXY), which measures the performance of the Greenback against six other major currencies, continued its ascent and traded at a six-month high, hovering around 105.50.
Furthermore, rising US Treasury yields have contributed to the USD’s strength, increasing the opportunity cost of holding non-interest-bearing assets like gold. The yield on the 10-year US Treasury note reached 4.43%, marking its highest level since 2007.
In a press conference held immediately after the rate decision on Wednesday, Federal Reserve Chair Jerome Powell reaffirmed the Fed’s commitment to achieving its long-term inflation target of 2%. Powell also indicated that the central bank might be nearing the peak of its interest rate hike cycle, but he stressed that future policy decisions would be data-driven.
Investors are closely monitoring upcoming data releases from the United States (US) scheduled for Thursday. These reports include the weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Survey, and changes in Existing Home Sales. These data points hold the potential to offer valuable insights into the condition of the US labor market, manufacturing sector, and real estate market, all of which are key factors shaping economic sentiment.