While dollar index rose to 2-year high following Fed cutting the rates by 25 basis point but dashing hopes for further rate cuts and leading uncertainty regarding its monetary policy path, gold prices continued to fall on Thursday. After Fed’s statement, Fed Chair Jerome Powell said this was not a beginning of a rate cut cycle while US President Donald Trump said “as usual, Powell let us down, but at least he is ending quantitative tightening.” In the meantime, manufacturing data released today showed weakness in the global economy persisted in July. As Japan’s manufacturing PMI contracted for the third consecutive month, China’s Caixin manufacturing PMI recovered slightly but continued to stay in contraction area. Moreover in Eurozone, where recent data showed inflation weakened further, manufacturing sector contracted the most since 2012 in July.
As Federal Reserve did not signal whether it would continue cutting rates and Fed Chair Jerome Powell’s statements were considerably hawkish despite 25 basis point rate cut, gold was weighed on by stronger dollar even though yellow metal continued to hold above $1,400 an ounce.
As of 13:14 GMT+3, spot gold was trading at $1,405.16 an ounce while dollar index was at 98.84 after it hit 2-year high at 98.93. US 10-year Treasury yield slightly increased to 2.023 after it was down to 2 following Fed statement yesterday.
National Australia Bank economist John Sharma said on Reuters that the rate cut was more like an insurance policy rather than a beginning of a series of rate cuts which created uncertainty.
Pointing out impacts of international developments on economic outlook and low inflation pressure, Fed announced 25 basis point rate cut yesterday. In the statement, it said uncertainties remained however American economy continued to hold tight while adding the Committee would act as appropriate to sustain economic growth and continue assessing realized and expected economic conditions. The statement also announced quantitative tightening would end as of August, two months earlier than previously anticipated.
Even though Fed dashed hopes for a lengthy easing cycle, CME Group’s FedWatch Tool shows there is still 56.5% chance of another 25 basis point rate cut in September.
Following Fed statement, US President Donald Trump said market expectation was to see a beginning of a rate cut cycle however Powell let him down as usual while adding “at least, he is ending quantitative tightening.”
In the meantime, manufacturing data released today showed weakness in the global economy persisted in July. In Japan, manufacturing sector recovered slightly but contracted for the third consecutive month as manufacturing PMI increased to 49.4 from 49.3. According to economists, Japan’s manufacturing sector would have another tough quarter as manufacturers reported lowering their stocks and input purchases to minimize costs. In addition, employment recovered slightly but new orders and export orders continued to contract.
In China, Caixin’s readings were largely in line with official PMI data as it continued to contract even though data showed slight recovery from 49.4 to 49.9. Alongside with economic stimulus by Chinese government, domestic demand helped new orders to reach above 50 level however weakness in export orders persisted due to trade dispute with the US and global economic slowdown.
In Eurozone, where recent data showed inflation continued to weaken further in July, data showed manufacturing PMI decreased to 46.5 from 47.6 in July and manufacturing sector contracted the most since December 2012. IHS Markit stated rising geopolitical concerns including trade dispute and Brexit uncertainty alongside with both domestically and internationally slowing economic growth hurt confidence and weakened economic outlook. As Eurozone economy is not expected to recover soon, this will likely increase bets that European Central Bank will cut the rates in September, given its dovish stance last week.