While dollar weakens due to dovish Fed minutes following its increase after European Central Bank President Mario Draghi’s comments yesterday, gold prices slip from its two-week high on Thursday. In Fed minutes, it is seen that Fed officials expect interest rates to be kept on hold this year due to developments in economic outlook and increasing risks, however Fed leaves room for another rate hike later this year if the economy will perform well as expected. In the meantime, it is announced that the EU and the UK agreed on an extension of Brexit until October 31, following the EU leaders summit yesterday.
Gold prices slipped from two-week high on Thursday while dollar index fell following dovish Fed minutes, after it was supported by ECB keeping interest rates on hold yesterday and stating no further rate hikes till 2020 as well as ECB President Mario Draghi stating that weakness in Eurozone would last longer than expected.
As of 12:49 GMT+3, spot gold was trading at $1,304.56 an ounce while dollar index was at 96.94. US 10-year Treasury yield was steady at 2.477.
Fed published its March meeting minutes yesterday. According to the minutes, Fed officials were supporting Fed’s patient stance while it was stated that developments in economic outlook and risks would likely warrant no further interest rate hikes for the rest of this year. Moreover, some participants said interest rates could change in either ways depending on economic data and other developments while some others said there could be moderate increase in interest rates later this year in case the economy was in good place as expected, with growth rate being above long-term trend.
Former Fed Chair Janet Yellen said on Wednesday that there could be a rate cut only if risks to the US economy were to increase, adding that there was no such need for a rate cut currently. Yellen said monetary policy was in good position and underlined strong US labor market and inflation close to Fed’s target 2%.
While Fed is still optimistic about economic outlook, Rabobank stated in its latest report that there could be a rate cut since they expected a recession in 2020. In addition to this, Tobias Adrian, Director of the Monetary and Capital Markets at IMF, underlined the risks of political pressure on Fed’s monetary policy and said President Trump’s pressure on Fed to cut interest rates would risk assured central bank’s independency.
In the meantime, it was announced that the EU and the UK agreed on an extension of Brexit to October 31, following EU leaders summit yesterday. In the announcement, it was stated that Brexit still could happen before the stated date should Brexit parliament approved current Brexit deal. According to agreement, the UK will need to attend EU parliamentary election on May 23-26. If the UK chooses not to attend the election, then the UK will have to leave the EU on June 1. It was also stated that the UK could still cancel Brexit and stay in the EU while EU Council President Donald Tusk said six-month extension was enough to solve current conflicts and warned the UK not to waste that time. In addition to this, British Prime Minister Theresa May said she would still work hard to deliver Brexit before June 1 while France President Emmanuel Macron underlined there would be three choices on October 31: leaving with a deal, cancelling Brexit or leaving the EU without a deal.