Market Developments: Gold Steady, Dollar Rises, Yen Falls, Crude Declines
Gold remained stable near $2,310 per ounce on Wednesday as investors awaited comments from several Fed officials this week for insights into potential rate cut timelines. Minneapolis Fed President Neel Kashkari suggested the US central bank might keep borrowing costs unchanged for an extended period due to stagnant inflation and a robust housing market. CME's FedWatch Tool indicates a 64% chance of a rate cut in September, boosting gold's appeal as lower rates make non-yielding bullion more attractive. Additionally, the People’s Bank of China increased its gold reserves by 60,000 troy ounces in April, marking the 18th consecutive month of purchases. Meanwhile, the US expressed optimism that negotiations could bridge the gap between Israel and Hamas regarding a Gaza ceasefire, while Israeli forces took control of the main border crossing in Rafah.
On Wednesday, the dollar index surpassed 105.50, reaching one-week highs following hawkish comments from a Federal Reserve official. Minneapolis Fed President Neel Kashkari suggested on Tuesday that the central bank might maintain its current stance until clear signs of disinflation emerge, leaving open the possibility of a hike if inflation accelerates. Despite this, markets are pricing in interest rate cuts this year, supported by weaker-than-expected US jobs data and dovish signals from other Fed officials. Investors are now awaiting further central bank statements and Friday’s Michigan Consumer Sentiment Index for additional clarity on the rate trajectory.
The Japanese yen fell below 155 per dollar, reversing about half of last week's gains, despite ongoing warnings from Japanese authorities against excessive currency fluctuations. Finance Minister Shunich Suzuki reiterated the readiness of authorities to address foreign exchange volatility, while Bank of Japan Governor Kazuo Ueda emphasized the need to assess yen movements' impact on inflation for policy decisions. Last week, the yen surged up to 5.2% amid suspected government intervention, with BOJ data indicating nearly $60 billion was spent to support the currency. However, analysts suggested interventions would only provide temporary relief due to significant interest rate differentials between Japan and the US. US Treasury Secretary Janet Yellen also emphasized the importance of rare interventions and consultation, highlighting a lack of coordination between Japan and the US on foreign exchange policy.
WTI crude futures declined towards $78 per barrel on Wednesday, nearing their lowest levels in almost two months. This drop followed reports suggesting that Russian Deputy Prime Minister Alexander Novak hinted at a possible increase in crude production by OPEC+. The group of major producers is set to convene on June 1 to determine output policy for the second half of the year. The current supply agreement, removing approximately 2.2 million barrels per day from the market, will expire at the end of June. Additionally, industry data revealed a 0.509 million barrel increase in US crude inventories last week, contrary to market expectations for a 1.43 million barrel decrease. Investors are also eyeing the latest Chinese trade figures this week to assess the economic strength of the world's leading crude importer.