Gold Resumes Downtrend After Rejection at MAs
The risk sentiment turned negative for most of February, as the data pointed to a recovery in the US economy, while FED members started making more hawkish comments. In the last couple of weeks, we have seen some uncertainty though, as markets awaited stronger signals from Powell, who gave such signals today during his testimony at the US Congress.
Risk sentiment turned negative and the USD started resuming the uptrend. The losses in risk assets such as in European markets are approximately half of those seen in the US. Throughout most of the day, the primary indexes in Europe were performing well but stumbled just prior to Powell’s speech and then further following his hawkish comments.
- If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of hikes
- We will continue to make our decisions meeting by meeting
- Latest economic data stronger than expected, particularly inflationary pressures
- Some strength in overall January data reflects better weather
- Little sign of disinflation so far in core services excluding housing
- To get inflation back to 2% we need to lower core services inflation ex housing and very likely will get some softening in labor market
- History cautions against loosening policy prematurely
- Ongoing increases in policy rate likely appropriate
The odds of 50 bps in March are now up to 42% from about 26% before Powell spoke. The peak rate is now up to 5.59% from 5.45% beforehand.
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