MARKET UPDATE

Dollar gains as Fed flags more rate hikes ahead

The dollar climbed broadly on Thursday after the Federal Reserve

raised interest rates by a widely-expected half a percentage point overnight, and its policymakers foresaw making further hikes and keeping rates high for longer than earlier hoped.

Setting out the Federal Open Market Committee’s determination to tame inflation despite a risk of recession, Fed Chair Jerome Powell said rates were expected to peak above 5%.

Against a basket of currencies, the U.S. dollar index rose 0.22% to 103.89. But was still languishing near a six-month low hit in the previous session, which had reflected some market scepticism over whether the Fed’s would actually take rates so high.

 

Oil snaps three-day rally as hawkish Fed offsets positive demand signs

Oil prices fell on Thursday as hawkish signals from the Federal Reserve brewed uncertainty over U.S. economic health and spurred some profit taking after a three-day rally, even as the outlook for demand improved.

The International Energy Agency forecast a rebound in oil demand over the next year, as China scales back COVID restrictions and as U.S. and global inflation begins easing. This spurred strong gains in crude prices on Wednesday.

But a rally in oil prices was cut short after the Federal Reserve struck a more hawkish tone than markets were expecting. While the central bank did hike interest rates by a relatively smaller 50 basis points, it also warned that borrowing costs will peak at higher-than-expected levels in 2023.

Fed Chair Jerome Powell warned that the bank will target some cooling in U.S. economic growth.

Rising interest rates were among the biggest weights on oil prices this year, as monetary conditions tightened and as a stronger dollar made buying crude more expensive. The prospect of a sustained uptrend in rates, which is likely to spur strength in the dollar, dims the outlook for prices.

 

Gold spooked by hawkish Fed outlook despite smaller rate hike

Gold prices fell on Thursday after the Federal Reserve struck a more hawkish chord than markets were expecting, with the outlook for the yellow metal remaining uncertain on the prospect of higher U.S. interest rates.

Still, bullion prices marked a strong rally this week, clearing the key $1,800 resistance level after data showed U.S. inflation eased further in November.

Spot gold fell 0.4% to $1,800.79 an ounce, while gold futures fell 0.4% to $1,811.35 an ounce by 20:46 ET (01:46 GMT). Both instruments were still trading up 0.6% for the week.

Prices of the yellow metal retreated slightly on Wednesday after Fed Chair Jerome Powell warned that U.S. interest rates were likely to peak at higher-than-expected levels, even as the central bank hiked rates by a relatively smaller 50 basis points (bps) and outlined a slower pace of hikes.

Rising interest rates were the biggest headwind to gold markets this year, as they drove up the opportunity cost of holding non-yielding assets. With Wednesday’s hike, the Fed has raised its benchmark rate by 425 basis points this year, putting it at its highest level since the 2008 financial crisis.

 

 

 

 

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