On Wednesday, Federal Reserve Chairman Jerome Powell said the U.S. economy is at an inflection point, but the likelihood of raising interest rates before the end of 2022 is very low, with most Fed officials not expecting a rate hike before 2024. The dollar index extended losses and hit 91.57, its lowest level since March 19, on Powell’s dovish comments and a pullback in U.S. Treasury yields. When the dollar fell, spot gold did not rise but fell, short – term down about $15, refresh day as low as $1732.45 / ounce; The three major U.S. stock indexes were mixed, with the Dow and S&P 500 both setting new all-time highs, while the Nasdaq swung from positive to negative. Now, the focus turns to a speech by Fed Vice Chairman Larry Clarida scheduled for 3:45 p.m. ET and U.S. retail sales data for March due Thursday.
Fed Chairman Colin Powell said Wednesday that policy makers will wait until inflation reaches 2 percent on a sustained basis and the labor market fully recovers before considering raising interest rates.
That is unlikely to happen before the end of 2022, he said.
“The majority of the committee did not think there would be a rate hike in 2024, but that’s not the committee’s forecast, that’s not what we voted on it or acted on it as a group, that’s really just our assessment,” Powell said Wednesday at a virtual event hosted by the Economic Club of Washington. “The market pays too much attention to what we say about the economic forecast, and I will pay more attention to what we describe as the results.”
Powell said the United States was entering a period of faster growth and job creation, and the main risk was another surge in COVID-19 cases due to strains of the virus that could be harder to treat.
The Fed chairman said it was wise to keep the mask on and maintain a social distance “at least for a period of time”.
Powell and his colleagues have pledged to be patient and maintain aggressive monetary policy support even as the recovery from the pandemic accelerates. That dovish view helped push U.S. stocks to new highs. Recent data also paint a brighter picture as vaccination spreads and the economy recovers, with the U.S. economy adding 916,000 jobs in March.
Fed policy makers sharply raised their forecasts for economic growth and jobs at last month’s meeting, while holding interest rates near zero and signaling they will stay low until 2023. The median forecast suggests the economy will grow 6.5 percent this year and the unemployment rate will fall to 4.5 percent by the end of 2021.
Minutes of the March meeting, released on April 7, said policy makers expected it would be some time before substantial progress was made on employment and inflation. That was a reference to the tests they have set for scaling back their $120 billion monthly bond purchases.
Eyes now turn to a speech by Federal Reserve Vice Chairman Larry Clarida at 3:45 p.m. ET and U.S. retail sales data for March due Thursday.
The dollar has rallied this year as Treasury yields have risen in anticipation of faster economic growth and higher inflation. However, this trading has been halted this month and yields have stabilised below the one-year highs reached last month.
“All the trade in support of the dollar has been yield-based, and given that the yield-based move has come off its highs, so has the dollar,” said Boris Schlossberg, managing director of currency strategy at BK Asset Management in New York.
“Until the bond market gets nervous about inflation fears again, I think long dollar positions will continue to take a hit,” he said.
After breaking the 92.00 level, the downside of the DXY gained further momentum and faced the risk of a deep correction. Technically, the 50-day SMA around 91.60 will provide short term support, then the support area around 91.30, which is the mid-March weekly low.
In precious metals, global stocks held near record highs, offsetting support from a weaker dollar and data showing a jump in U.S. inflation for bullion, which fell on Wednesday.
Spot gold fell about $15 to a fresh session low of $1,732.45 / oz in the US trading session, and now rebounded from the low.
Comex’s most active gold futures contract traded 2,989 lots, with a total contract value of $519 million, in one minute at 21:17 Beijing time on April 14.
The rise in Treasury yields appeared to “put some very slight pressure on the (gold) market,” said David Meger, director of metals trading at High Ridge Futures in New York.
But Meger added that gold’s pullback appeared to be more technical, with $1,750 providing both technical and psychological resistance in the short term.
Meger further added that higher inflation, coupled with expectations of a recovery in U.S. demand, will push prices higher across the board, from stocks to commodities.
In stocks, U.S. stocks rose to record levels on Wednesday as investors digested the first batch of strong corporate earnings.
Led by Goldman Sachs, the Dow Jones Industrial Average rose 200 points to an all-time high. The Standard & Poor’s 500-stock index rose 0.2%, also to a record high. The Nasdaq Composite Index was down 0.20% after rising and falling.
Shares of Goldman Sachs rose 4.7% after the bank’s first-quarter net income and revenue beat analysts’ estimates thanks to strong performance in its equity trading and investment banking divisions.
JPMorgan beat analysts’ estimates on both revenue and revenue, helped by a $5.2 billion gain on money the bank had set aside for unrealized loan losses. JPMorgan shares fell about 1%.
Wells Fargo also reported first-quarter earnings and revenue that beat estimates. The stock rose 4 per cent.
Bank stocks have surged this year, with the KBW Bank Index handily outperforming the S&P 500.
JJ Kinahan, the chief market strategist at TD Ameritrade, said: “The first wave of first-quarter earnings for the big banks was almost as strong as most analysts expected – in fact even stronger. It is possible that we are in a strong market that is tolerant of bad news. “The path of least resistance for stocks seems to be to continue higher, but the market’s rising fears have not gone away.”