How Will This Interest Rate Cut Affect Markets?
Hey there,
The dollar remained steady during the Asian session this morning. The Fed is widely expected to cut interest rates by 25 bpt. Traders however, are preparing for a potential hawkish outlook from the central bank considering recent data which showed U.S inflation remained sticky and the labor market strong. The central bank is expected to signal slower pace of easing in 2025 with several analyst predicting a hold in Jan. With retail sales coming out stronger than expected, the Fed now has enough headroom to cut rates at a slower pace.
Because gold does not generate income like interest-bearing assets such as bonds or savings accounts, the opportunity cost of holding gold increases when interest rates are higher, making it less attractive to investors. And with the dollar remaining strong near three-week highs on the dollar index. Higher interest rates typically strengthen the dollar, further pressuring gold because it is priced in dollars and becomes more expensive for foreign buyers.
Additionally, higher interest rates often signal a stronger economy, which can reduce demand for gold as a safe-haven asset.
The dollar remained steady during the Asian session this morning. The Fed is widely expected to cut interest rates by 25 bpt. Traders however, are preparing for a potential hawkish outlook from the central bank considering recent data which showed U.S inflation remained sticky and the labor market strong. The central bank is expected to signal slower pace of easing in 2025 with several analyst predicting a hold in Jan. With retail sales coming out stronger than expected, the Fed now has enough headroom to cut rates at a slower pace.
Because gold does not generate income like interest-bearing assets such as bonds or savings accounts, the opportunity cost of holding gold increases when interest rates are higher, making it less attractive to investors. And with the dollar remaining strong near three-week highs on the dollar index. Higher interest rates typically strengthen the dollar, further pressuring gold because it is priced in dollars and becomes more expensive for foreign buyers.
Additionally, higher interest rates often signal a stronger economy, which can reduce demand for gold as a safe-haven asset.
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