Economy

Gold up as dollar eases, markets eye Fed meet

Gold up as dollar eases, markets eye Fed meet”

"The anticipated announcement of the start of balance sheet normalisation and the likelihood of the Fed keeping the option of a December rate hike alive has been the catalyst for last night's United States dollars move", traders at HiFX said in a note.

The dollar gained almost 2.8 percent against the yen last week, buoyed by a rise in U.S. Treasury yields that bolstered the greenback´s appeal, and as data showing a pick up in U.S. consumer prices helped rekindle expectations that the Federal Reserve could raise interest rates again in December.

The main event, however, will be the Fed's meeting on Tuesday and Wednesday, at which it is likely to take another step toward policy normalization in what is rapidly becoming a worldwide trend.

Euro zone wages grew at their fastest rate in two years in the second quarter, data released on Friday showed, increasing the chances that the European Central Bank will set out plans next month to rein in its economic stimulus.

Yet persistently subdued inflation despite a pick-up in global growth remains the "trillion dollar" question for central banks looking to normalise policy, a report from Bank for International Settlements said on Sunday.

"We´ve certainly seen some adjustment on the December rate hike probabilities".

Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in NY, said "the primary reason USA yields are creeping up is that thinking about it clearly, the market has decided that the Fed is unlikely to change the December 2017 dot - still saying they expect one more rate hike in 2017".

"When you press investors on the why, the standard reply is the lack of inflationary pressures".

The greenback has benefited from a recent surge in US bond yields.

In Europe, the eye-catching move was a sharp slide in Portuguese yields - and rise in prices - after the country regained an investment grade rating after 5-1/2 years.

The dollar stood little changed at 111.455 yen after climbing to 111.665 overnight, its highest since July 27.

The Bank of Japan meets this week, although it is widely expected to maintain its massive asset buying campaign at a meeting on Thursday.

Sterling touched its highest since the Brexit vote on Monday after notching its best week in nearly nine years against a currency basket.

The Canadian dollar had surged to a two-year high of C$1.2063 on September 8 after the BOC hiked interest rates.

Talk of monetary tightening and a bounce in the dollar put gold on the defensive.

Among other precious metals, held steady at $961.55, while shed 0.2% to $928.20 an ounce.

U.S. crude prices weakened overnight, as well, partly as a result of a U.S. Energy Information Administration statement that October shale production is likely to rise to around 6.1 million barrels per day.



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