Today's Federal Reserve decision could bring changes to the Fed's projections and could show an interest rate hike in 2023. The market seems to be already discounting this possibility, as federal funds rate futures show the possibility of two hikes by the end of 2023.
In anticipation of the news that will be released at 20:00, the US dollar seems relatively strong, with the US currency index near 5-week highs. In addition to a possible increase in the projection for interest rates for 2023, the central bank is expected to continue to maintain the ultra-accommodative monetary policy until the economy improves further. Yields on 10-year U.S. Treasury securities were near 1.5 percent, and investors appear to be reassured about inflation concerns after U.S. policymakers repeatedly asserted that higher inflation would be temporary. Economic data showed that U.S. retail sales fell 1.3 percent in May, while the market expected a 0.8 percent decline, and producer prices rose more than expected. In addition, data released last week showed that U.S. consumer price inflation reached its highest level since 2008, but this may be compounded by the May 2020 base effect.
A stronger dollar, the absence of inflation concerns and its possible transitory nature, may be factors that are not necessarily conducive to gold quotations. Hence, bullion quotes seem to be near 4-week lows. Gold had two successful months, supported by the weakness of the American currency and the growing negative real interest rates in the USA. Currently, it seems that these are not going to deepen any further, and what is more, US bond yields may start to rise, which would not be the best news for gold.
Meanwhile, oil prices gained slightly on Wednesday, beating multi-year highs, supported by an improved demand outlook due to the acceleration of COVID-19 vaccinations, which contributed to the lifting of travel restrictions in Europe and the US. OPEC+ agreed to maintain its plan to gradually reduce supply constraints through July, signaling continued strengthening market fundamentals on the supply side. Expectations for increased Iranian oil exports also diminished after Iranian Deputy Foreign Minister Abbas Araghchi said it was unlikely that nuclear talks in Tehran would be concluded before the country's presidential election. Meanwhile, the American Petroleum Institute (API) data showed that U.S. crude inventories fell by 8.537 million barrels in the week ended June 11, 2021, the biggest drop since the week ended September 11, 2020. Oil prices for the moment seem to be ignoring the spread of a new strain of coronavirus from India and, for example, the postponement of the opening of the British economy for that very reason.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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