Gold holds steady as Fed rate pause bets weigh on dollar

Galtero Lara
Enero 10, 2019

Risk appetites were strong in Asian trade, thanks to China's aggressive monetary easing on Friday to address a sharp economic slowdown and to hopes that Washington and Beijing can strike a comprehensive trade deal. It is now 6 percent higher than its December trough. FTSE 100 Index futures gained 0.1 percent.Japan's Topix index rallied 2.8 percent at the close.

"Market sentiment has improved", said Gao Qi, a strategist at Scotiabank. Powell said last week that he wouldn't resign if Trump asked him to.

The American central bank chairman Jerome Powell said last week that the Federal Reserve could put a pause on the interest rate hikes if the United States economy would weaken and even pledged that he will stay despite the pressure from Trump to resign.

Financial markets have been rattled by heightened worries about slowing global growth, especially in the United States and China, though data on Friday showed strong U.S. job growth.

Notwithstanding strong monthly data for December last week, market watchers believe the world's biggest economy is losing momentum with Federal Reserve chair Jerome Powell's comments adding to expectations the central bank may adopt a more cautious outlook. The boost to stock markets saw them recapture all the year's losses and push into positive territory for 2019 so far, with Wall St's main indices closing up more than 3 percent by the close on Friday.

Interest rate futures traders are now pricing in a chance of a small rate cut this year, while the Fed has indicated that two rate hikes are likely.

However, few analysts still see scope for the Fed to raise rated in 2019. Poland and Hungary surprised the market in 2018 by adding to their gold holdings for the first time in many years.

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Wee said he still expects the Fed to hike rates twice this year.

In currency markets, the dollar index .DXY , which tracks the greenback versus the euro, yen, sterling and three other currencies, was down 0.49 percent at 95.709 amid the diminished expectations for further USA rate hikes. The move frees up $116 billion for new lending as it tries to reduce the risk of a pronounced fall in the pace of economic growth.

The People's Bank of China said on Friday it would cut the amount of cash lenders must hold as reserves.

European stocks were more or less flat across the board, though mining stocks surged 1.1 percent after the reserve requirement ratio cut from China boosted metals prices, especially steel and iron ore. E-Mini futures for the S&P 500 climbed another 0.4 percent.

The strong climbs in Asia followed a stock surge on Wall Street Friday, after better-than-expected US nonfarm payroll figures suggested a healthy labor market and eased investors' concerns about the potential for a USA economic slowdown.

The two sides have until March 1 to make a deal, after which Trump has pledged to ramp up tariffs to 25 percent, from 10 percent, on $200 billion worth of Chinese imports.

Commodity currencies such as the Canadian dollar gained 0.1 percent versus the greenback at C$1.3361 due to a rebound in oil prices.

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