Yesterday, the Federal Reserve System began its two-day meeting on monetary policy. Everyone is expecting a 25 basis point rate increase. However, the question of importance is whether this rate hike will be the last in the most aggressive tightening cycle in over 40 years. According to the CME FedWatch Tool, there is only a 20% probability of another rate increase in September. At the same time, there is a 56% probability that interest rates will remain in the range of 5.25% to 5.50% by the end of the year.
The near future of the XAU/USD pair depends on the outcome of today's Federal Reserve meeting.
If the Fed announces that there will be no further rate hikes, gold is likely to continue rising. Conversely, if the Fed continues with rate hikes, the precious metal may not demonstrate significant growth in the coming months.
At the same time, market participants agree that the moment when the Fed will no longer be able to raise interest rates is approaching. The outcome of the next Federal Reserve meeting may only affect the near future, not the overall situation.
According to many economists, the easing inflationary pressures give the Federal Reserve the opportunity to pause rate hikes. Presumably, when the U.S. economy slows down, and the rate hike cycle comes to an end (estimated to be around the end of 2023 and 2024), the U.S. dollar will weaken against other major currencies. During this period, gold may grow unhindered. However, this does not mean that all assets should be invested in gold.
Currently, according to FXTM's Senior Market Analyst, Lukman Otunuga, if the price securely breaks and holds above $1970, it may trigger movements towards $1985 and $2000, respectively.
The easing inflationary pressures provide the possibility of halting interest rate hikes by the Federal Reserve. According to data from the U.S. Bureau of Labor Statistics released last week, the Consumer Price Index increased by 3.0% in annual terms, the lowest growth in over two years. Core inflation also decreased more than expected, rising 4.8% year-on-year in June.
The market has already priced in this data. However, caution should be exercised in anticipation of the Federal Reserve's announcements.
