- Powell reiterated his belief that there would likely be more interest rate hikes in the coming months.
- Markets currently reflect a 77% probability of another 25 basis point rate hike in July.
- The Bank of England implemented a larger-than-anticipated 50 basis point rate hike.
Gold reached a three-month low on Thursday and was on track for its most significant weekly decline since February. Gold prices declined as Jerome Powell, the Chairman of the US Federal Reserve, maintained a hawkish stance and indicated that the central bank’s tightening cycle is not yet over.
Powell reiterated his belief that there would likely be more interest rate hikes in the coming months. This sentiment was echoed earlier by Fed Governor Michelle Bowman.
Gold also fell due to dollar strength following Jerome Powell’s hawkish remarks. A stronger dollar reduces demand for gold as it becomes more expensive to foreign buyers. During his remarks to lawmakers in Washington on Wednesday, Powell stated that the likelihood of two additional 25-basis-point rate increases is “a reasonable estimate” if the economy continues on its recent trajectory.
The hawkish comments from Powell also led to an increase in US Treasury yields, with the yield on 10-year Treasury notes rising by 7.6 basis points to 3.798% in afternoon trading.
The Bank of England’s unexpected decision to implement a larger-than-anticipated 50 basis point rate hike to address persistent inflation in Britain further highlighted the ongoing global economic challenge of rising prices.
The Swiss National Bank and Norges Bank also raised their benchmark rates. This raised worries about the potential impact of rate hikes on demand.
Oliver Pursche, senior vice president and adviser for Wealthspire Advisors in Westport, Connecticut, commented, “Investors should acknowledge that central banks worldwide will continue to combat inflation aggressively.”
Last week, the Fed decided to maintain its benchmark interest rate at a range of 5% to 5.25%, but most policymakers anticipate more increases by the end of the year.
According to CME’s FedWatch tool, financial markets currently reflect a 77% probability of another 25 basis point rate hike at the conclusion of the Fed’s July meeting. As rates go up around the world, demand for gold decreases.
US jobless claims (Source: Labor Department)
Elsewhere, economic indicators showed that jobless claims remained steady at a 20-month high. Furthermore, the Conference Board’s Leading Economic Index recorded its 14th consecutive monthly decline. These reports indicate that the Fed’s measures to cool down the economy are starting to take effect.
