While dollar continues to strengthen following Fed minutes, gold keeps trading in a narrow range. In Fed minutes released yesterday, Fed officials favored patient stance to remain “for some time” while adding there was no reason to change interest rates in either way which supported dollar and that weighed on yellow metal despite rising trade tensions and pull back in global markets. In the meantime, Eurozone’s economic activity increased slightly however weakness in manufacturing deepened and it contracted for the fourth month in a row in May, according to flash PMI data released today. Both manufacturing and services sector deteriorated in bloc’s biggest economy Germany while there was slight recovery in France.
Gold prices increased on Thursday but continued to trade in a narrow range while safe haven demand following rising trade tensions between the US and China has been met by strong dollar which was further supported by Fed minutes.
As of 15:24 GMT+3, spot gold was trading at $1,280.61 an ounce while dollar index increased to 98.18. US 10-year Treasury yield was down to 2.361.
In Fed minutes released yesterday, Fed officials stated it would be appropriate to keep patient stance “for some time” while adding there was not enough reason to change interest rates in either way. While it was iterated that weakness in inflation was transitory, officials expected inflation to increase up to 2% target with increasing economic activity and tight labor market. FOMC’s next meeting will be held on June 18-19 and Fed will release its updated projections. So, since the last meeting was before recently risen trade tensions between the US and China and a trade deal was still expected back then, Fed will likely change its stance significantly in its next meeting, considering the risk of further escalation in trade war.
Kodak Securities analyst Mahdavi Mehda said on Bloomberg that dollar was preferred as a safe haven amid trade tensions between the US and China while adding Fed would start stating downside risks if trade relations were to deteriorate further.
In the meantime, Eurozone’s economic activity slightly increased in May, according to flash data released today, however weakness in manufacturing sector which continued to contract in the fourth month in a row seems to start affecting services sector. Eurozone’s composite PMI increased to 51.6 from 51.5 while manufacturing PMI was down to 47.7 from 47.9 and services PMI decreased to 52.5 from 52.8.
In bloc’s biggest economy Germany, contraction continued in manufacturing sector as it decreased to 44.3 from 44.4 while services sector which was the main driver of the economic activity recently seems to be weighed on as well and it decreased to 55 from 55.7. However, contraction in output, new orders and exports sales slowed down which signals deterioration in manufacturing might come to an end, even though there is long way to start expanding again. Moreover, composite PMI, which is better indicator of general health of the economy, increased to 52.6 from 52.2.
On the other hand, there seems to be a slight recovery in bloc’s second biggest economy France. Manufacturing PMI increased to 50.6 from 50 while services PMI was up to 51.7 from 50.5. Thus, composite PMI was also up to 51.3 from 50.1 however this expansion is expected to be limited if trade tensions continue to escalate.