Bets for further interest rate cuts by the Federal Reserve have intensified as the US Dollar (USD) begins to recover from its lowest levels since December 10. Recent macroeconomic data from the United States suggests a cooling economy, prompting concerns over the growth outlook. This uncertainty is affecting various financial markets, including precious metals and currencies. Despite a slight recovery in the USD, gold prices are struggling, undermined by the dollar's newfound strength.
The USD's resurgence is supported by a modest recovery in US Treasury bond yields, helping it move away from recent lows. This strength in the dollar has weighed heavily on gold prices, which attracted fresh sellers during the Asian session on Thursday. The precious metal's inability to maintain the modest gains recorded on Wednesday is further compounded by uncertainty surrounding US President Donald Trump's tariff plans, which provide a tailwind for gold but have not been sufficient to sustain its value.
The USD/JPY pair has gained significant traction, rising above the 149.00 mark, reflecting the dollar's strength in the face of economic uncertainties. Meanwhile, market participants are closely watching the upcoming release of the US Personal Consumption Expenditure (PCE) Price Index on Friday. This key indicator is expected to influence the Federal Reserve's interest rate decisions moving forward.
Atlanta Fed President Raphael Bostic recently commented that the US central bank should maintain current interest rates to apply downward pressure on inflation. While progress has been made in reducing inflation, it remains high. Bostic's remarks come amidst rising expectations for further rate cuts this year, as the economy shows signs of cooling.
Adding to the economic uncertainty, a White House official confirmed that the deadline for tariffs on Mexican and Canadian goods remains in effect. This ongoing trade tension contributes to volatility in financial markets, particularly impacting gold prices and currency movements.
The USD's recovery has been bolstered by an overnight bounce from its 11-week low, aided by a modest rise in US Treasury bond yields. This has allowed the dollar to regain some of its lost ground, despite the challenging economic landscape. As a result, gold prices continue to face pressure from fresh sellers, unable to capitalize on geopolitical uncertainties and potential safe-haven demand.