CWG Information: U.S. Federal Reserve Officials' "Hawkish" Speech Stimulates, the Dollar Rises on Tuesday, Gold Slightly Retreats, Focus on Fed Officials' Speeches
Market Summary:
On Tuesday (May 7), the U.S. dollar index steadily increased, having dipped to a daily low of 105.04 before the U.S. market open. It then recouped all its losses and turned positive, ultimately closing up 0.27% at 105.37. The yield on 10-year U.S. Treasury bonds continued to fall, closing at 4.462%. The yield on 2-year Treasuries, which are most sensitive to Federal Reserve rate policies, ended at 4.832%.
Gold prices saw a decline on Tuesday (May 7) following a rise the previous trading day, as the seizure of the Rafah crossing by military forces blocked aid routes. The United States still believes it is possible to break the stalemate in ceasefire efforts, reducing the demand for gold as a safe-haven asset, but the decline in gold prices was not significant, as traders remained focused on the Federal Reserve's interest rate cut prospects.
Oil prices experienced a drop due to signs of easing supply constraints and an unexpected increase in API crude oil inventories. WTI crude fell to a daily low of $77.36 at one point on Tuesday (May 7), later regaining some ground to close down 0.41% at $78.11 per barrel; Brent crude fell 0.51% to close at $82.92 per barrel.
Previous Data and News:
Stimulated by the hawkish speeches of Fed officials on the same day, the dollar strengthened against a basket of currencies, showing fluctuating gains during the day and rising by the close. The U.S. Dollar Index, which measures the dollar against six major currencies, rose by 0.35%, closing at 105.412 in the currency market.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said at noon that part of the stagnation in inflation is due to the robust housing market, meaning the Federal Reserve will need to keep borrowing costs stable for "an extended period," possibly throughout the year. Kashkari mentioned, if inflation cools again, there remains a possibility for the Federal Reserve to cut interest rates.
Joseph Trevisani, a senior analyst at the foreign exchange news site FXStreet.com, stated that the latest stance of Fed officials does not show consistency, which does not align with what many market participants and some within the Fed itself wished to see regarding interest rate cuts.
Masato Kanda, Japan’s Vice Minister of Finance for International Affairs, indicated that Japan might have to take measures to address disorderly and speculative changes in the foreign exchange market, hinting that the Bank of Japan is still prepared to intervene in the forex market.
Trevisani mentioned that the massive intervention by the Bank of Japan last week had some success, but there have been no actions now, with officials currently observing.
Kenny Fisher, an online forex market analyst, noted that the yen fell against the dollar for the second consecutive day. After rising 3.4% last week, it has already fallen by 1% in the first two days of this week.
Fisher said that the previous intervention only provided temporary support for the yen. As the Federal Reserve hinted it would not rush to cut rates, the interest rate differential between the dollar and the yen remains wide, putting pressure on the yen.
On Tuesday (May 7), local time, Joachim Nagel, a member of the European Central Bank's executive board and president of the Bundesbank, stated that the eurozone will not return to the era of ultra-low inflation pre-COVID-19 pandemic. Geopolitical and decarbonization factors may keep inflation in the eurozone at a higher level in the coming years.
Nagel said at a meeting on Tuesday: "A series of potential factors could lead to increased inflationary pressure in the future." He also mentioned that the ongoing decline in Europe's population could lead to sustained wage increases.
The yield on 10-year U.S. Treasury bonds fell on Tuesday (May 7), closing at a near four-week low the previous trading day, though trading remained light.
The yield on 10-year U.S. Treasury bonds fell at one point during the day to 4.449%, recovering to 4.7% by closing. According to data from the U.S. Treasury Department, the yield on 10-year Treasury bonds has fallen for five consecutive trading days by the close on Tuesday, 22BPs lower than on April 30; the yield on 2-year Treasuries changed little at 4.82%; the yield on 30-year Treasuries dropped from Monday's 4.64% by 3BPs to 4.61%, also falling for five consecutive trading days, 28BPs lower than on April 30.
In the early Asian market on Wednesday (May 8), spot gold traded narrowly, currently at around $2315.49 per ounce. Gold prices fell on Tuesday following a rise the previous trading day, as military forces seized the Rafah crossing, blocking aid routes. The United States still believes it is possible to break the stalemate in ceasefire efforts, reducing the demand for gold as a safe-haven asset, but the decline in gold prices was not significant, as traders remained focused on the Federal Reserve's interest rate cut prospects.
Kitco's senior market analyst, Jim Wyckoff, commented: "What we saw in the gold and silver markets on Tuesday was a routine price correction after Monday's rise, which was not surprising."
According to the Federal Reserve Watch tool of the Chicago Mercantile Exchange, traders in the federal funds futures market believe there is about a two-thirds likelihood of the Federal Reserve cutting rates in September.
Neel Kashkari, president of the Minneapolis Federal Reserve, stated in a new article released on Tuesday that the robustness of the U.S. real estate market and the potential stagnation in inflation progress imply monetary policy may not be as tight as Fed officials thought.
Data shows that central banks of major Asian countries have been accumulating gold for 18 consecutive months, adding 60,000 troy ounces to their reserves despite high prices.
Economists at Morgan Stanley, citing "a lack of progress" in inflation, postponed their expectation for the Federal Reserve's first interest rate cut from July to September. They still anticipate three cuts this year, each by 25 basis points. Economists Ellen Zentner, Sam Coffin, and Diego Anzoategui mentioned in their report that the lack of progress since the beginning of the year means Federal Reserve policymakers need more time to be confident that inflation is consistently moving towards the 2% target. They expect that by the end of the year, the three-month and six-month annualized core PCE will be "close to or below" 2%, making it "too late" to wait until after September to cut rates.
Analysts at Heraeus stated that gold prices continue to face resistance from rising bond yields, while silver will benefit from the global rollout of 5G in the coming years. The analysts wrote in their latest precious metals report that the Federal Reserve has confirmed the market's assessment of the economy.
They stated: "Federal Reserve Chairman Jerome Powell at last Wednesday's FOMC meeting denied the possibility of a rate hike in June, but given the lack of progress towards achieving the 2% target rate, he reiterated the commitment to prioritizing inflation containment." "Despite the dollar's continued strength, it has declined over the past two weeks. However, the likelihood of a rate cut by the end of the year gradually increased after the meeting."
They also pointed out that the amount of gold purchased by central banks in the first quarter was unprecedented. They stated: "Global central banks added 289.7 tons of gold reserves, setting a new high for the first quarter." "Western ETF investors, especially European funds, remain significantly absent from the gold market, reducing about 30 tons from ETF holdings in April."
U.S. Dollar Index Technical Analysis:
The U.S. Dollar Index faced resistance below 105.45 on Tuesday, with support above 105.00, indicating the dollar may continue its upward trend after a short-term decline. If the index stabilizes above 105.15 today, the target for subsequent increases could be between 105.60--105.70. Today's short-term resistance for the index is at 105.55--105.60, with significant resistance at 105.65--105.70. Short-term support today is at 105.25--105.30, with significant support at 105.15--105.20.
Euro/U.S. Dollar Technical Analysis:
The euro saw support above 1.0745 against the dollar on Tuesday, with resistance below 1.0790, indicating the euro may continue its downward trend after a short-term rise. If the euro faces resistance below 1.0780 today, the target for subsequent decreases could be between 1.0735--1.0720. Today's short-term resistance for the euro is at 1.0760--1.0765, with significant resistance at 1.0775-1.0780. Short-term support today is at 1.0735-1.0740, with significant support at 1.0720--1.0725.
Gold Technical Analysis:
Gold found support above $2309.00 on Tuesday, with resistance below $2330.00, indicating gold may continue its upward trend after a short-term decline. If gold stabilizes above $2306.00 today, the target for subsequent increases could be between $2327.00--$2338.00. Today's short-term resistance for gold is at $2326.00--$2327.00, with significant resistance at $2337.00--$2338.00. Short-term support today is at $2306.00--$2307.00, with significant support at $2298.00--$2299.00.
Major Financial Events:
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