Gold prices plummet as US Inflation remains stubborn.
The gold market (XAUUSD) is under heavy selling pressure after the US Bureau of Labor Statistics (BLS) issued Persistent Consumer market Index (CPI) data for February in Tuesday’s early New York session. Strong CPI figures have led to lower market Expectations for Fed rate Reduction at the June policy meeting. Stubborn price pressures have raised the opportunity cost of holding investments in non-yielding assets like gold.
The higher than expected inflation figure raises yields on interest-bearing assets. 10-year US Treasury yields rose sharply to 4.15%. The US Dollar Index (DXY), which closely measures the value of the greenback versus six major currencies, rises to 103.20.
Market expectations for the Fed to lower interest rates in June could be impacted.
The USD index broke Monday’s trading range on the upside, with sticky inflation data expected to allow Fed policymakers to resist rushing to slash interest rates. In the long run, a sticky inflation report will boost the appeal of the US dollar since it will allow the Fed to maintain interest rates higher for a longer period.
Daily Market movers: Gold price declines after sticky US Inflation Data.
Gold price falls as US consumer price inflation data proves more persistent than expected.
The monthly headline CPI grew by 0.4%, as expected, following a 0.3% increase in January. . The monthly core CPI, which excludes volatile food and energy costs, increased at a steady rate of 0.4%, but investors expected it to climb by 0.2%. Annual headline inflation rose by 3.2%, above expectations and the previous reading of 3.1%. The core CPI rose by 3.8%, above estimates of 3.7% but falling short of the previous reading of 3.9%.
Hotter-than-expected inflation statistics would allow Federal Reserve policymakers to avoid rushing into rate decreases. Fed policymakers may stress that a win over inflation is not within reach. Furthermore, the uncertainty surrounding interest rate decreases in the first half of this year will grow as authorities consider maintaining interest rates higher.
US yearly headline inflation rose to 3.2%, but core CPI increased by 3.8%.
Last week, Fed Chair Jerome Powell remarked in his Congressional testimony that It would be improper to begin cutting interest rates before having confidence that inflation will consistently return to the 2% target. Powell did, however, say that the central bank is on the verge of reaching that conviction.
Prior to the release of the US CPI statistics, market expectations for the Fed to lower interest rates in the June meeting were high since labor market conditions are not too tight.
The US Nonfarm Payrolls (NFP) report for February indicated slower pay growth and a higher unemployment rate, but hiring remained strong. According to the CME FedWatch tool, the Fed has a 72% chance of cutting interest rates in June.
