In early New York session, the price of gold (XAU/USD) dipped from $2,350 as the United States annual core Personal Consumption Expenditure Price Index (PCE) data for March surpassed estimates. The annual underlying inflation figures rose to 2.7%, slightly above the anticipated 2.6%, albeit decelerating from February’s 2.8%.
The unexpected surge in inflationary indicators dampened Gold’s appeal, diminishing hopes of potential Federal Reserve (Fed) rate cuts during the September monetary policy meeting. While the monthly underlying inflation data aligned with expectations and the prior reading of 0.3%, the overall scenario favored bond yields and strengthened the US Dollar.
Despite a marginal decline, 10-year US bond yields held near a five-month high at 4.69%, as the persistent inflationary pressure suggests a delay in Fed rate cuts later this year.
Simultaneously, the US Dollar Index (DXY), reflecting the Greenback’s performance against six major currencies, rebounded to 105.80 following the release of the hotter-than-anticipated inflation data. This resurgence followed a decline on Thursday prompted by weaker-than-expected US Q1 GDP growth, which raised concerns about the economy’s sustainability in forthcoming quarters.
In summary, the market dynamics illustrated a scenario where the Gold price struggled to maintain its position near $2,350, while the US Dollar regained momentum after the robust US core PCE Inflation data for March. Despite earlier concerns over weaker-than-expected GDP growth in the US economy, traders are now reevaluating Fed rate cut expectations in response to stubbornly high GDP Price Index and core PCE Price Index data.
With the GDP Price Index rising to 3.1% from the previous 1.7%, traders are increasingly cautious, reflected in the reduced likelihood of a rate cut in September, as indicated by the CME Fedwatch tool, down from 69% to 59%.
Investor attention now shifts to the US core PCE Price Index data for March, expected to provide further insights into the Fed’s potential interest rate adjustments. The outcome of this data release will likely influence the Fed’s interest rate outlook leading up to the May 1 monetary policy meeting, where the central bank is widely expected to maintain interest rates unchanged within the range of 5.25% to 5.50%.
