EBC Global Focus| Gold sold off overnight as hawkish Fed comments drive dollar higher

The dollar index was trading around 106.66 in early Asian trading on Friday Beijing time; the dollar rose on Thursday as U.S. Treasury yields rose and investors focused on hawkish statements from Federal Reserve officials. The British pound fell as the UK government's latest budget did not impress investors; gold prices fell as Fed officials said US inflation needs to slow further and the market interpreted this as interest rates going higher, leading to an overnight sell-off in gold.


The dollar rose on Thursday as U.S. Treasury yields rose and investors focused on hawkish statements from Federal Reserve officials. The British pound fell, with the U.K. government's latest budget not impressing investors.

The dollar rebounded slightly, having been down in recent weeks as inflation data and statements from Fed officials boosted bets that the Fed may soon slow the pace of interest rate hikes. However, St. Louis Fed President Bullard showed a chart for discussion at an event Thursday that showed that even using "dovish" assumptions, basic monetary policy rules would require the Fed's policy rate to rise to about 5 percent, while stricter assumptions would require rates to rise above 7 percent. After a series of aggressive rate hikes, the federal funds rate range is now at 3.75%-4.00%.


This comes a day after San Francisco Fed President Daley said there was no consideration to pause rate hikes, raising doubts about the Fed's policy shift. Daley has previously been one of the most dovish officials.

The pound was down 0.53% at $1.1850, having fallen as much as 1.25% earlier to touch $1.17645. The euro was up 0.26 percent against the pound, at 0.8743 pounds. The euro ended the day down 0.30 percent against the dollar at $1.0364, after falling 0.86 percent earlier in the day. Earlier in the week, the euro briefly touched $1.048, its highest level since July.


The dollar was up 0.44 percent against the yen at 140.1650 at the end of the session, after falling earlier. It had jumped 0.83 percent after hitting a daily high on Thursday. The Australian dollar fell 0.82 percent to $ 0.6682; the New Zealand dollar fell 0.46 percent to $ 0.6121. 

Gold prices fell nearly 1% on Thursday as the dollar rebounded and recent statements by Federal Reserve officials hinted at continued tightening of policy to curb inflation. Spot gold fell 0.8 percent to $1,760.43 an ounce, after falling to $1,753.60 earlier in the session. Bob Haberkorn, senior market strategist at RJO Futures, said Fed officials said U.S. inflation needs to slow further, "and the market interpreted that as interest rates will be higher, leading to an overnight sell-off in gold. The dollar strengthened on these comments that the Fed will still continue to raise interest rates, and gold took the brunt of the blow in rising rates."


Last week's decline in U.S. initial jobless claims reflects the resilience of the U.S. economy, as the labor market remains tight despite the Fed's aggressive rate hikes to cool demand in the economy. While Fed Governor Waller said Wednesday that he was "more comfortable" with lowering interest rate hikes in the future, St. Louis Fed President Bullard said the Fed needs to keep raising rates, probably by at least another 100 basis points. Spot silver fell 2.5% to $20.93 an ounce, platinum fell 2.5% to $980.61 and palladium fell 3.2% to $2006.07.


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