Daily digest market movers: Gold price drops as US Dollar strengthens
- Gold's price is pressured by the US Dollar’s strength. The appeal for the Greenback strengthened after the Swiss National Bank (SNB) emerged as leading the global rate-cut cycle. The SNB surprisingly reduced interest rates by 25 basis points (bps) to 1.50% on Thursday. This has increased optimism among market participants about other central banks following the same pattern, particularly in economies where inflation is decelerating and risks of a recession are high.
- The European Central Bank (ECB), the Bank of England, and the Bank of Canada (BoC) are also expected to start considering rate cuts soon. Due to their poor economic outlook, rate cuts could be aggressive in the longer term.
- Like other central banks, market participants anticipate that the Federal Reserve will also begin cutting interest rates this year. However, the Fed is not expected to rush for rate cuts as the US inflation is sticky and the US economic outlook is upbeat. The US economy exhibits a firm footing on the grounds of consumer spending and the labor market, providing time for the Fed to observe more data before moving to cuts.
- This week, the Gold price saw a strong rally after the Fed stuck to projections of three rate cuts for 2024. Fed Chair Jerome Powell said in his monetary policy statement that the story of easing price pressures is intact despite recent hot inflation readings.
- Though the Fed maintained its view of three rate cuts, it was clear from its side that rate cuts would be appropriate only if it gains greater confidence that inflation will sustainably come down to the 2% target. Assets that pay no interest, such as Gold, face downside pressure when the Fed keeps interest rates higher for a longer period.
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