Daily digest market movers: Gold price drops as US Dollar strengthens
- Gold price falls slightly to $2,150 amid uncertainty ahead of the Federal Reserve’s interest rate decision. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50% for the fifth time in a row. Therefore, market participants will majorly focus on the Fed’s dot plot and economic projections.
- The Fed’s dot plot, which is updated quarterly, shows policymakers’ projections for interest rates over different time frames. December’s dot plot indicated that policymakers saw back then three rate cuts for 2024 and believed that the rate-tightening campaign had peaked.
- Fed policymakers have been reiterating that rate cuts are appropriate only if they get evidence that inflation is declining towards 2% in a sustainable manner. For interest rate decisions, Fed policymakers generally consider the core Consumer Price Index (CPI) data as it remains free from the impact of volatile food and energy prices. Core inflation has remained broadly sticky in the first two months of 2024, adding to speculation that the Fed will project fewer than three rate cuts for this year. If this happens, it would increase the opportunity cost of investment in non-yielding assets such as Gold, weighing on its price.
- The CME FedWatch Tool shows that there is a 60% chance that at least three rate cuts will be announced by 2024. The chances for at least three rate cuts were slightly below 80% prior to the release of the February hot consumer and producer inflation data. Higher-than-expected US producer and consumer inflation has also dented market expectations for the Fed to begin rate cuts in the June policy meeting.
- Later this week, investors will focus on the preliminary S&P Global Manufacturing and Services PMI for March. The Manufacturing PMI is anticipated to fall to 51.7 from 52.2 in February.
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