Title: Daily Market Summary: Precious Metals Rebound as FOMC Signals Rate Cuts
Original article by XTB Market Analysis Team
Rewritten and expanded by AI
Following a volatile start to the week in the global financial markets, investor attention on Wednesday turned toward key macroeconomic updates from the United States that significantly influenced the outlook for interest rate policy. In this extended market summary, we examine the main developments, focusing particularly on the precious metals rebound, the Federal Reserve’s latest meeting, and how these events affected currency and equity markets.
Precious Metals Climb Amid FOMC Dovish Tilt
Precious metals saw a broad rebound on Wednesday after the Federal Reserve concluded its latest policy meeting. Although the Fed left its key interest rates unchanged, forward guidance indicated that most members still anticipate at least one interest rate cut this year. This dovish stance supported gold and silver prices, which had previously been under pressure due to fluctuating real yields and a stronger dollar in recent sessions.
Key highlights include:
– Gold prices recovered strongly after initial declines earlier in the week. Spot gold hovered near $2,320 per ounce at the close of the U.S. trading session, reflecting renewed investor demand amid expectations of policy easing.
– Silver also demonstrated robust intraday recovery, surging from around $29.20 to over $29.80 per ounce, supported by technical buying and renewed appetite for inflation hedges.
– U.S. bond yields saw moderate retracement after the Fed’s decision, particularly on the short end of the curve, aiding the bullish case for non-yielding assets like gold and silver.
– A softer U.S. dollar in the late trading session further supported precious metals pricing, especially as the USD index retreated from weekly highs.
Federal Reserve Holds Rates, Projects One Cut in 2024
The Federal Open Market Committee (FOMC) concluded its highly anticipated June meeting with no change in its benchmark interest rate, maintaining the federal funds rate within the 5.25 to 5.50 percent range. However, the Summary of Economic Projections (also known as the “dot plot”) revealed a notable shift. While in March the Fed’s median projection showed officials expected three cuts in 2024, the latest update suggests only one cut is most likely, although divisions among policymakers indicate uncertainty remains.
Details of the FOMC’s stance:
– Powell emphasized the need for more progress on inflation before the Fed could begin cutting rates, citing persistent core inflation metrics.
– Still, he acknowledged that labor market conditions appear to have softened slightly, altering the Fed’s risk assessment.
– The core Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, remains elevated but shows signs of cooling, giving doves some leverage in internal debates.
– The market currently prices in approximately 44 basis points of rate cuts by December 2024, equivalent to about two 25-basis-point cuts, above the one cut in the Fed’s projections. This discrepancy underscores the divergence between market expectations and official guidance.
Macroeconomic Backdrop: CPI Offers Relief
In the hours leading up to the Federal Reserve’s policy decision, the U.S. Consumer Price Index (CPI) reading offered some relief to markets. May’s inflation data came in slightly below expectations, reinforcing sentiment that disinflationary forces may reassert themselves in the second half of 2024.
U.S. Inflation Snapshot:
– Headline CPI remained unchanged month-over-month in May, lower than the 0.1 percent print forecasted by the consensus.
– Year-over-year inflation cooled to 3.3 percent, from 3.4 percent in April.
– Core CPI, which strips out volatile food and energy components, rose just 0.2 percent on the month, below expectations of 0.3 percent. The year-over-year figure declined to 3.4 percent.
– These figures, while still above the Fed’s 2
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