Gold, US Dollar React To FOMC
Fx Empire | Jul 10, 2014 05:42AM ET
The US Dollar Index traded on a negative note and declined around 0.2 percent in yesterday’s trading session on the back of rise in risk appetite in market sentiments which led to decline in demand for the low yielding currency. However, mixed scenario by the US Federal Reserve officials in its minutes yesterday cushioned sharp fall in the DX. The currency touched an intra-day low of 80.03 and closed at 80.04 on Wednesday. The US dollar continues to trade in the red during the Asian session this morning touching 80.05 and looking to head below the 80 level.
Gold traders showed a big response to the Federal Reserve minutes gaining $6.10 in the Asian session to trade at 1330.40 after closing on Wednesday at 1324.00. Gold hit a one-week high overnight, then extended gains in electronic trading following minutes of the U.S. Federal Reserve ‘s June meeting.
Minutes from the Fed’s last meeting were released expressing some concerns investors are becoming too complacent on the economic outlook. This adds to the yellow metals safe-haven appeal. The minutes said: “Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy.”
Fed officials agreed that their bond purchases would end with a final reduction of $15 billion at the October meeting if the economy progresses as they expect. The announcement that the stimulus will end in October was a given, so you did not see any negative reaction in the market. Minutes of the June meeting showed some officials expressed concerned investors may be complacent about the economic outlook. The minutes offered no new clues on the timing of an interest-rate rise even as policy makers agreed bond-buying would end in October. Gold rose 11 percent this year amid geopolitical tensions around the world, an uneven U.S. recovery and a slowing pace of sales from exchange-traded products. Gold rose to a one-week high after several Federal Reserve policy members expressed concern that investors may be growing too complacent on the economic outlook, boosting demand for the metal as a haven. “Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy,” the minutes of the last Federal Open Market Committee meeting showed today.
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Gold has climbed 11 percent this year, partly on speculation that a faltering economic recovery would spur the Fed to keep borrowing costs close to zero percent. The dollar headed for the third straight drop against a basket of major currencies, erasing earlier gains and increasing the metal’s appeal as an alternative asset.
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