The decision of the Fed to raise rates is negative for gold

The decision of the Fed to raise rates is negative for gold


The Fed raised interest rates at the meeting, which ended on Wednesday. The US central bank raised interest rates by 25 basis points to 1% range -1.25%. This is the second increase in interest rates this year, which central bankers demonstrate his confidence in the stability of the US economy. The decision was widely expected by investors as a day earlier, futures on federal funds showed that the likelihood of an increase in interest rates is over 90%.

With regard to inflation, central bankers expect that it will remain around the target level of 2% in the next one year. Expectations for economic growth by the end of 2017, were he to be 2.2%. Previous forecast in March was about 1.7%.

During the press conference after the meeting Janet Yellen clarified issues with the balance of the Fed, worth about 4.5 trillion dollars. Federal Reserve Chairman said that the central bank will probably start unwinding some of those in the coming months.

Raising interest rates support the dollar, which earlier in the day lost ground after the publication of data on consumer prices in the US. In May, inflation has reached 1.9% yoy, below preliminary forecasts of economists of 2.1 percent. Retail sales also disappointed, reported a decline of 0.3%.

Expectations were for a slight increase of 0.1 per cent. As a result of weak economic data, the US dollar fell against most major currencies. The dollar index, which measures the change of the greenback against a basket of six currencies fell by just over half a percentage point to 96.48 points. Earlier in the day the index retreated to 96.32 – its lowest level since November 9 last year.

The euro managed to advance against the greenback by 0.5 per cent to 1.1269 dollars per euro, but during the press conference the Fed loses accumulated profit. The yen rose again by 0.74% to 109.13, and later in the evening also stepped positions.

The Canadian dollar rose, supported by data on oil stocks in the US. USDCAD pair is trading at levels of 1.3219. Mixed economic data from the UK pushed up the pound. The British currency ended the day with an increase of 0.36%.

The decision of the Fed to raise rates is negative for gold. Precious metal fell almost 0.7% to 1259.53 dollars an ounce, although earlier in the day rose to 1282.54 dollars. Silver was showing the opposite performance after managing to hold their positions and closed with a growth of 0.3 per cent to 16.81 dollar an ounce. Among precious metals platinum had the strong performance, increasing by one percent to 933.20 dollars an ounce.

Today’s economic calendar is filled with important events. The first in the list is the forthcoming meetings of the central banks of England and Switzerland. Expectations are that both institutions will keep key interest rates unchanged. In France and Italy, it will be publishing inflation data. After lunch will be announced a new series of US economic news, the most important of which are the index of import prices, as well as applications for unemployment benefits. For the week to June 10 jobless claims are expected to fall to 242,000.

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Zac Berry is presently a full time editor at Market Morning. He covers the M&As and follows live market commentary. Before joining Markets Morning, Zac Berry worked with a start-up, where he worked in the capacity of a Team Leader tracking company events and results. Born in the U.A.E, he spent most of his growing up years in Dubai. Currently, he resides in U.S. and is pursuing his charter in Accountancy.