- Gold price remains sideways, slightly below $2,040, as investors await United States core PCE Price Index data for January.
- Market participants will pay close attention as it is the Fed’s preferred inflation tool. It doesn’t get distorted by base effects and provides a clear view of underlying inflation by excluding volatile items.
- Economists forecast underlying inflation data to decelerate to 2.8% from 2.9% in December on a year-on-year basis. The monthly core PCE Price Index data is forecast to have increased by 0.4% against a moderate growth of 0.2% in December.
- The economic data is expected to significantly impact market expectations for the timing of Federal Reserve rate cuts.
- Ahead of the underlying inflation data, the CME FedWatch Tool shows that interest rates will remain unchanged in the range of 5.25%-5.50% in the next two policy meetings, which will take place in March and May. Traders see a 53% chance for a rate cut by 25 basis points in the June meeting.
- The opportunity cost of holding non-yielding assets, such as Gold, would increase if the inflation data remains stubborn. Therefore, hawkish commentaries from Fed policymakers have been maintaining downward pressure on the Gold price.
- On Wednesday, New York Federal Reserve President John Williams said the decision on rate cuts will be dependent on incoming data. Williams added that the central bank has come a long way to bring down inflation to the 2% target, but there is more work to do.
- Boston Fed Bank President Susan Collins sees the Fed’s path returning to 2% as bumpy due to tight labor market conditions and higher inflation readings in January. Collins expects that the Fed will start reducing interest rates later this year.
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