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Gold price outlook has deteriorated by extremely hawkish Fed Powell’s comments on Tuesday. S&P500 retreated on the prevalent dismal market mood as more rates from the Fed do a lot to confirm a US recession.
At the time of writing, gold is trading at 1812.63 per ounce. The Gold Index (XAU/USD) witnessed intense selloffs after the comments by Fed chair Jerome Powell, in his testimony before Congress. Powell noted that the US central bank is prepared for more rates than previously anticipated. Considering the fact that consumer spending is resilient and the labor market is extremely tight, the Fed has no other option than to make monetary tools more restrictive.
Despite overbought readings, the US dollar is moving forward into the Asian session with momentum. But, the surge is vulnerable to the forthcoming US economic data. The dollar, therefore, looks to be searching for a new equilibrium. These things might make the financial markets more volatile. Powell will go before the US Congress in a two-day testimony on Wednesday. Will he make any effort to temper Tuesday’s message?
EUR/USD is testing 1.0550 after trading near 1.0700 a day ago, while GBP/USD fell to the lowest level in almost four months at 1.1830. The pound was also affected by the deterioration in market sentiment. EUR/GBP rose to weekly highs above 0.8900.
USD/CAD broke above the crucial 1.3700 area. On Wednesday, the Bank of Canada will have its monetary policy meeting, with rates expected to remain unchanged.
Economic Data
Looming key data includes the ADP private sector jobs report on Wednesday and Nonfarm payrolls on Friday.
Key Developments
In a hearing before Congress, Fed Chair Jerome Powell spoke about the possibility of largest interest rate hikes in light of the latest US economic data that is “stronger than expected”. Powell warned that inflationary pressures are higher than anticipated.
Powell’s comments increased expectations of a 50 basis points rate hike at the March meeting. Wall Street tumbled and the US Dollar jumped. The DXY hit its highest level since December, rising above 105.50.
Powell’s remarks hit market sentiment. Major US indexes dropped around 1.50%, the VIX soared by more than 4%. The US 2-year Treasury yield rose above 5% for the first time since 2007. Crude oil prices tumbled by nearly 4%. Cryptocurrencies fell moderately, with Bitcoin holding near $22,000.
The Australian Dollar was among the worst performers after the Reserve Bank of Australia (RBA) meeting. The RBA raised rates by 25 bps as expected but said inflation may have peaked. RBA Governor Philip Lowe will speak on Wednesday, with analysts looking for fresh guidance. AUD/USD broke below 0.6700, extending losses below 0.6600. The pair is under pressure after the soft message from the RBA and the Dollar’s rally.
The USD/JPY pair has surged and is now trading close to the 200-day Simple Moving Average and above about 137.00. (SMA). The Japanese Yen performed well against other currencies, helped by risk aversion, but declining against the US dollar. Haruhiko Kuroda, the governor of the Bank of Japan, will preside over his final monetary policy meeting on Thursday.
Also Read:
Gold price could fall below $1,810 as Fed sets the scene for higher rate
Fed’s Powell set the scene for tighter conditions, faster rate hikes
USD/CAD climbs to 4-month highs above 1.3755
GBP/USD nosedived on hawkish remarks by Fed Chair
Powell’s comments spark fears on Wall Street of higher rates for longer
Fed’s Powell: Overall data on labour market shows it is extremely tight
EUR/USD retreats as US Dollar Index jumps on Fed Powell’s remarks
