- The FOMC has begun discussing rate hikes.
- Gold is under pressure due to Russian bullion sales.
The US dollar retreated as the odds of a rate hike at the end of the year fell from 57% to 52%, which was reflected in a drop in the interest rate. Elsewhere, shares were boosted by NVIDIA's first-quarter results and SpaceX's IPO filing.
Minutes from the April FOMC meeting showed that most officials are willing to raise rates if inflation remains persistently above 2%. At the same time, an overwhelming majority believes that bringing the PCE to its goal will take longer than previously assumed.
As a general rule, a shift by the Fed toward discussing rate hikes pushes up Treasury yields and strengthens the dollar. This time, things played out differently as markets saw that the central bank has no intention of ignoring inflation. However, in the medium term, expectations of a federal funds rate hike remain a bullish factor for the US currency.
The drop in Treasury yields was helped by the biggest sell-off in two weeks, sparked by Donald Trump's comments. The president stated that the United States is in the final stage of negotiations with Iran. However, the blockage of the Strait of Hormuz is accelerating the reduction of global oil inventories. According to Man Sachs, 8.7 million b/d are falling in May, twice as fast as at the beginning of the conflict in the Middle East.
If there is no progress towards a peaceful agreement, Brent will resume its rally, which would favor the dollar, especially in the event of further geopolitical escalation. Iran has vowed to respond harshly to any resumption of US military action, including by bombing countries beyond the Middle East.
The dollar's retreat and falling Treasury yields allowed gold to find its footing. Still, interest in the precious metal is being eroded by the highest yields in key sovereign bond markets since 2008.
Gold was also hit by news that Russia had sold gold, taking its reserves to a four-year low of 73.9 million ounces.
The FxPro Analyst Team
