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Fed Indicates the Rate Hike Slowdown, Gold is Strengthening

by Didimax Team

The price of gold was strengthening where it can be seen on Thursday session. It consolidated after the federal reserve meeting minutes showed a signal that they will slow the interest rate hike speed. 

Before, the price of this commodity was strengthening up to the area of $1,758.49 per Troy ounce. Low interest rates are likely to increase market interest in precious metal.

It was compared to other assets. However, high interest rates make gold still a hedging asset in the face of high inflation and economic uncertainty so far this year.

The minutes of the Fed meeting held on November 1-2 showed a point. It seems that the majority of Fed officials agreed that in the near future it would be appropriate to slow the pace of rate hikes.


The Rate may Increase by 25 – 50 BP

Currently, the market prediction is that it is 85% likely that the Fed will raise interest rates in the range of 25-50 basis points. It is especially at the meeting to be held in December 2022.

After the announcement of the minutes, the dollar tends to weaken against almost all major currencies. The weakening of the dollar makes the precious metal cheaper for investors who do not hold the USD.

According to Wang Tao, a technical analysis from Reuters, strengthening will be hold at the technical resistance area. This is around $1,758 per Troy ounce and it may be slipped again. 

A member of the Monetary Policy Committee of the Bank of England (BoE), Catherine Mann, yesterday said that she expects inflation to still be able to exceed the upper limit.

Wages are Accelerating too Quick 

It is especially of the forecast published by the Bank of England earlier this month. Mann, who in a monetary policy meeting voted to raise interest rates sooner this year, said wages and price increases are accelerating too fast at the moment.

The BoE's forecast for November 3 shows the inflation rate according to the model implemented by the BoE. The result was in the next two years should be below the 2% target.

It seems that he was very confident that inflation will be around 3 percent. Mann said that in a presentation at a conference held at King's College London.

Mann added that he still expects that sterling is still at risk of weakening when it was seen from the political situation in the UK. Thus, potentially weighing on the strengthening of the Great Britain currency against the USD.

Britain Economy is Getting Better 

As is well known, Britain has just come out of a political turmoil. It was followed by a fairly rapid, fastest change of Prime Minister in British history. 

This point, according to Mann, coupled with the rate of inflation that is still likely to rise, could weigh on sterling. That is especially if the BoE does not take appropriate monetary policy steps.

Before, Federal Reserve (Fed) officials agreed that a smaller rate hike might be implemented as soon as they evaluate the policy's impact on the economy.

According to the FOMC meeting minutes released early this morning time, that situation was clearly seen.  Reflecting statements from several Fed officials, the meeting minutes provide an indication their aggressiveness in its rate may be lower.

The Results will be Made in December Meeting 

Markets are currently expecting the Fed to raise interest rates by only 25 basis points or 0.25% at its December meeting. Nonetheless, the officials also said another thing. 

They still need to see some more evidence that inflation is actually slowing. Several committee members said their concern, especially about the risk in financial system. 

It is especially if the Fed continues to aggressively implement its rate hike strategy. The majority of participants believed that lowering the pace of rate hikes would be imminent.



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