BOE cuts interest rates to two-year low

Gold prices fell in European trade on Thursday away from two-week highs on profit-taking, and under pressure from the rising US dollar.

The Federal Reserve maintained interest rates unchanged for the third straight meeting, pointing to rising inflation and unemployment concerns due to tariffs.

Prices

Gold prices fell 1.3% today to $3320 an ounce, with a session-high at $3414.

On Wednesday, gold fell 1.9%, the first loss in four days on profit-taking away from a two-week high at $3435.

The Dollar

The dollar index rose over 0.35% on Thursday for the second straight session against a basket of major rivals.

A stronger dollar makes greenback-denominated futures less attractive to holders of other currencies.

US dollar’s gains also come as recession concerns receded amid positive developments on trade negotiations, and amid a bullish stance by the Federal Reserve.

Trump’s Trade Deal

US President Donald Trump said he’ll announce a big trade deal with a “highly respectable country” in a new conference later today, the first of many such deals.

It’s likely to be a trade deal with the UK, which itself reached a free trade deal with India last week.

The Fed

In a step that wasn’t surprising, the Fed decided to maintain interest  rates unchanged at below 4.5%, due to ongoing economic uncertainty.

The statements asserted the FOMC continues to monitor risks closely, and believes that unemployment and higher inflation risks are on the upside.

The statement hinted that tariffs threaten higher prices and could slow growth, which opens the door to the scenario of inflationary recession.

Most Fed policymakers believe the central bank is in a good position to hold off modifying policies until clear data presents itself.

The Fed’s decision comes as the US administration engages in intense talks with trade partners to reach deals within the 90-day pause on reciprocal tariffs that Trump provided.

Powell

Fed Chair Jerome Powell provided important remarks following the meeting:

– He expects higher short-term inflation

– Tariffs are the main mover of inflation forecasts

– Tariffs so far are much larger than expected

– Sustained tariffs will lead to higher inflation and less employment 

– Fed remains in a good position before changing policies

– Fed isn’t in a rush to cut interest rates

– He opened the door for more interest rate cuts this year is suitable

US Rates

Following the Fed meeting and according to the Fedwatch tool, the odds of a June 0.25% interest rate cut fell from 32% to 20%.

71% to 66%.

SPDR

Gold holdings at the SPDR Gold Trust fell 0.29 tons yesterday, the fourth drop in a row, to a total of 937.67 tons, the lowest since April 9.