Gold prices declined significantly, almost completely offsetting yesterday's increase caused by US inflation data. Pressure on prices was exerted by the results of the Fed's June meeting, namely the updated forecasts for interest rates.
The strengthening of the US currency also had a negative impact on the precious metal. The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.14% to 104.78.
Yesterday, the Fed, as expected, kept the rate at 5.25%, but policymakers' median projection for the number of cuts this year fell to just one, from three in March. Experts said that although weaker-than-expected US inflation figures for May caused a surge in gold purchases, the takeaway from the Fed meeting was that the number of rate cuts in 2024 have been reduced and are still some distance down the road. Despite the Fed's projections, markets stuck with pricing in almost two 0,25% rate cuts this year. According to the CME FedWatch Tool, markets see a 8.3% probability of a 25 basis point rate cut at the Fed meeting in July, a 61.5% probability of a rate cut in September, and a 74.2% probability of monetary policy easing in November.
Today, investors will focus on data on US producer prices, which will be published at 12:30 GMT. Despite the fact that market participants tend to pay more attention to the consumer price index and the PCE deflator in order to assess the main inflation trends, the producer price report should contain a lot of valuable information. Several components of the producer price index are useful for forecasting the PCE deflator, and the May report may help determine expectations about the future direction of inflation. As with other inflation indicators, economists expect producer price growth to slow in May to 0.1% m/m from 0.5% m/m in April. As for the core producer price index, growth is forecast at 0.3% m/m, compared to +0.5% m/m in April.