Last Friday, the US reported that the inflation May was the highest in 41 years, standing at 8.6% in annual terms, which raised the chances that the Fed will have to prolong its series of 50 basis point rate hikes well into the third quarter, and might even open the door to an even larger 75 basis point move at the 2020 monetary policy meeting. Wednesday.
Benchmark 10-year US bond yields stand at 3.2% on Monday, following rising nearly 12 basis points on Friday, while the Bank of Japan has also confirmed it would buy Japanese government bonds on Tuesday as part of his policy to keep the benchmark 10-year bond yield close to his 0% target.
The Bank of Japan meets on Friday and its decision to buy government bonds on Tuesday suggests it is likely to keep its ultra-loose monetary policy loose.
A phrase beginning to be used more widely among the central banking community is the need for “stronger” monetary tightening to deal with inflation,” ING analysts say in a note. real interest rates will continue to be a drag on risk assets and procyclical currencies (especially energy importers). This is a positive environment for the dollar.”
Elsewhere, the EUR/USD pair is down 0.3% to the 1.0486 level, continuing the weakening seen following Thursday’s meeting of the European Central Bank, when the central bank confirmed that it will end its long plan purchase of bonds at the beginning of next month and that it would start applying interest rates in July.
“The weak point has been that peripheral debt markets were left unprotected without enough news on anti-fragmentation support packages,” adds ING. “But there was also a sense that, as a procyclical currency, the euro might not appreciate rate hikes as growth forecasts were downgraded.”
Meanwhile, gold fell 1% on Monday, as the dollar strengthened and Treasury yields rose, as data showing rising inflation in the United States fueled bets of steeper rate hikes by part of the Federal Reserve.
Spot gold fell 0.8% to $1,855.19 per ounce by 1021 GMT, retreating from more than a month’s high of $1,877.05 hit earlier.
US gold futures were down 0.9% at $1,857.80 an ounce.
Data on Friday showed US consumer prices accelerated in May, marking their biggest annual increase in nearly 40-1/2 years, suggesting the Fed might continue its 50 basis point interest rate hikes until September to combat inflation.
While inflation concerns tend to support gold, expectations of rate hikes to combat rising prices tend to boost the dollar and reduce the appeal of non-interest bearing bullion.
Bullion is suffering due to the strength of the dollar, said Carlo Alberto De Casa, external markets analyst at Kinesis.
But the fact that gold continues to hold above the $1,850 technical support level following Friday’s strong rebound shows that there is still good interest from investors, De Casa added.
On Friday, gold fell to a nearly one-month low, but then rebounded strongly amid a volatile session as economic concerns captured the market’s attention.
Yields on 10-year US Treasury bonds hit their highest level since 2018 on Monday, while the dollar hit a one-month high, making gold more expensive for foreign buyers.
Among other precious metals, spot silver was down 1.7% at $21.51 an ounce, platinum was down 2.9% at $945.41 and palladium was down 2.2% at $1,892.34. .