Gold price strengthens as investors digest expected hawkish guidance from Fed

• Gold price runs north swiftly as investors seem clear that a small interest-rate hike from the Fed cannot be ruled out.
• The US Dollar Index is under pressure as Fed’s July rate hike could be the last one in the current tightening spell.
• US GDP numbers are due Thursday, keeping FX in action.

Gold price (XAU/USD) attempts to come out of the woods as investors digest the fact that the Federal Reserve (Fed) will raise interest rates by 25 basis points (bps) to the 5.25%5-5.50% range. The precious metal picks strength as market participants hope July’s rate hike will be the last one this year, prompting the Fed to pause the rate-hiking spell for a longer period.

Easing fears of a global recession, the United States upbeat Consumer Confidence, and expectations of the Fed announcing an interest rate peak have built pressure on the US Dollar Index (DXY). The index retreats as investors are anticipating that Fed Chair Jerome Powell won’t be much formidable about sticky inflation. After the Fed’s policy decision on Wednesday, US GDP numbers for the second quarter are in the pipeline on Thursday, keeping investors on edge.

Daily Digest Market Movers: Gold price rises ahead of Fed policy decision

• Gold price comes out of an oscillation made around $1,960.00 ahead of the Federal Reserve’s monetary policy decision.
• Practically, an interest-rate hike of 25 basis points (bps) is highly expected, pushing rates to 5.25%-5.50%, but easing inflationary pressures are casting doubts over guidance about September’s interest rate policy.
• If market participants go with Jerome Powell’s last commentary, one more interest rate hike is appropriate after July’s monetary policy.
• As per the CME Group Fedwatch tool, interest rates will peak around 5.25%-5.50% and will remain steady by year-end.
• The Fed is not expected to discuss rate cuts for this year as its foremost priority is to bring down inflation to 2% steadily.
• Headline Consumer Price Index has decelerated to 3.0% and core inflation has dropped below 4.8% in spite of a still tight labor market, which conveys resilience in the United States economy.
• Fears of a recovery in US inflation persist as firms are consistently employing fresh talent and offering higher wages to offset labor shortages.
• Consumer spending is also consistently rising due to higher disposable income, keeping core inflation stubbornly elevated.
• In addition to the economy’s resilience, US Consumer Confidence came in at 117.0 in July, the highest level in two years, amid upbeat labor market conditions and easing price pressures.
• The US Dollar Index has come under pressure as the International Monetary Fund (IMF) has increased global growth forecasts for 2023 to 3.0%, up 20 basis points from its last forecast in April.
• The upwardly revised forecast has trimmed fears of a global recession and is weighing on safe-haven assets.
• For the United States, a survey by the National Association for Business Economics survey (NABE) showed that 71% of respondents anticipated 50% or fewer chances of a recession.
• After the Fed’s interest rate decision, investors are likely to shift their focus toward second-quarter Gross Domestic Product (GDP) data and Durable Goods Orders for June, which will be released on Thursday at 12:30 GMT.
• The US economy is expected to have expanded at an annualized rate of 1.8% in Q2, n less than the 2.0% growth seen in Q1. Durable Goods Orders are seen expanding at a slower pace of 1.0% compared with 1.8% a month earlier.

Technical Analysis: Gold price attempts a consolidation breakout above $1,970

Gold price gathers strength for a break above the immediate resistance of $1,970.00 as investors have digested a hawkish interest-rate policy from the Fed. The precious metal is consistently trading back and forth in a wide range between $1,953 and$1,968 for the past three trading sessions amid obscurity about the Fed’s guidance for the remainder of the year.

A bullish crossover, represented by 20-day and 50-day Exponential Moving Averages (EMAs) at $1,951.00, indicates further strength in the bullish bias.