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Gold notches weekly loss as Fed begins rate hike

The news shaping the markets today

The People’s Bank of China held its one-year loan prime rate at 3.7% during its latest meeting, sending the CNY/USD forex pair slightly lower.


Fiji’s annual inflation rate eased to 1.9% in February, from 2.7% in the prior month. Despite the country’s inflation rate slowing to the lowest level since last November 2021, the FJD/USD pair declined in forex trading this morning due to a strengthening US dollar.


The Colombian economy grew 7.8% year-over-year in January, following a 11.9% surge in the prior month. However, the COP/USD forex pair remained broadly flat after the news.


US existing home sales fell more than 7% to an annualised rate of 6.02 million in February. The figure also missed the consensus estimate of 6.1 million. However, the Nasdaq 100 spiked more than 2% on Friday with some easing of Russia-Ukraine tensions.


Canada’s new home prices rose by 1.1% in February, following a 0.9% rise in the previous month, lending support to the CAD/USD pair in forex trading this morning.

 

What’s happening: Gold prices declined on Friday and ended the week in the red.

What happened: The US Federal Reserve last week announced a hike in its benchmark interest rates for the first time since 2018.

The news supported the US dollar on Friday, which exerted pressure on gold. The yellow metal recorded its steepest weekly downturn since November.

Why it matters: The lacklustre week for the safe-haven metal came amid several central banks, including the US Fed and Bank of England raising interest rates.

The Fed increased its benchmark rates by a quarter percentage point to a range of 0.25% to 0.5%. The US central bank also signalled around six rate hikes during the current year.

US rate hikes have a dual impact on gold prices. Firstly, a rate hike always supports the local currency, making it more attractive for investors to hold the US dollar instead of other currencies. An appreciation in the US dollar in turn makes gold more expensive for holders of other currencies. Moreover, the US dollar is a rival to gold for those looking for safe-haven trading and investment options.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, gained more than 0.2% on Friday. However, the index ended the week with losses of around 1%.

Trader risk appetite remained strong despite the surge in covid-19 cases in China and Europe. Gold prices also moved lower amid easing safe-haven demand with hopes of the ongoing peace talks between Russia and Ukraine resulting in some resolution.

April gold fell $13.90, or 0.7%, to close at $1,929.30 an ounce on Friday, after adding 1.8% on Thursday. The yellow metal lost 2.8% last week, notching the sharpest weekly decline since the week ended November 26, 2021.

May silver shed 53 cents, or 2.1%, to settle at $25.087 an ounce on Friday, after surging around 3.7% in the previous session. The white metal recorded a weekly decline of around 4.1%, putting an end to six consecutive weeks of gains. May copper rose 0.8% to $4.74 a pound, up 2.5% for the week. April platinum slipped around 0.2% to $ 1,029.8 an ounce, while June palladium fell 0.3% to $2,484.00 an ounce.

What to watch: Traders will keep an eye on the ongoing conflict between Russia and Ukraine and rising covid-19 cases in some parts of the world. Markets will also monitor fluctuations in the US dollar, as gold hovers close to the important support level of $1,920.

The markets today

The British pound will be in focus today after recording gains on Friday

 

Context: The GBP/USD forex pair moved higher on Friday following the interest rate decision from the Bank of England.

Details: The Bank of England policymakers voted 8-1 in favour of boosting the main Bank Rate by 0.25 percentage points to 0.75% at its latest meeting. With this, the BoE increased its interest rates at its third consecutive meeting. However, policymakers had a more dovish tone due to the Russia-Ukraine crisis, which could keep inflation elevated for some time to come.

UK’s inflation level had already spiked to a 30-year high before Russia’s invasion of Ukraine. The central bank’s Monetary Policy Committee raised its April inflation projections to 7.25% at the latest meeting.

The Bank of England followed the US Fed in hiking interest rates last week. Market experts project further rate hikes of 116 basis points from the BoE by yearend.

“Steep inflation that may reach double digits in autumn may motivate markets to maintain some of these bets, but a cost-of-living crisis that depresses growth and employment will keep the BoE from hiking excessively,” Scotiabank analysts said in a note to clients.

The GBP/USD forex pair gained 0.22% to settle at $1.3177 on Friday, notching its first positive week in the last four weeks. The sterling also recorded gains against the euro, with the GBP/EUR pair gaining around 0.6% on Friday.

What to watch: The ongoing war between Russia and Ukraine will remain one of the major concerns for traders. Investors will also monitor inflation in the UK and further moves by the US Fed.

Other Markets: European trading indices closed higher on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.26%, 0.17%, 0.22% and 0.91%, respectively.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.3165 and 1.3170 Negative
NZD/USD – 0.6915 and 0.6921 Positive
Gold – 1925.66 and 1930.26 Negative
Silver – 25.216 and 25.278 Positive
Copper – 4.7021 and 4.7241 Positive

 

Market snapshot

What else to watch today

Germany’s producer inflation, Turkey’s tourist arrivals and government debt, Central Bank of Brazil’s focus market readout, as well as US Chicago Fed national activity index and Fed Chair Powell speech.

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