After Monday’s speech by the US Fed representative Lael Brainard, who said that there were less grounds for the interest rate increase and improvements in the labor market did not have a positive impact on inflation, the USD fell sharply in the market. Investors believe that that the Fed will keep interest rates unchanged in coming months after the speech by Lael Brainard.
Futures for the interest rates of the Federal funds show 15% probability of the rate hike this month, versus 24% on the previous day.
Due to the statements made by Brainard, US stock indices and gold price changed movement direction and after the decline at the end of the Asian session on Monday the prices went up later and partly regained last Friday's losses.
Brainard's statement was opposite to the statements made by President of Fed Boston Mr. Rosengren, who said last Friday that there is all grounds for monetary policy, tightening, which would help avoid overheating of the economy. This statement caused the wave of sales in the stock markets.
With the opening of today’ trading day, the USD has gained yesterday’s losses and the price of gold is declining slowly to support level of $1326.00 per ounce. Expectations of low interest rates have supported gold prices, as gold does not bring interest income and cannot compete with risky assets, which bring income.
In case of the interest rate increase in the USA, gold will lose investment attractiveness, giving way to the USD and safe-haven assets, such as government bonds. Strengthening in the USD makes gold prices denominated in U.S. currency less attractive for holders of other currencies, as the borrowing costs for its acquisition and storage are growing.
However, demand for gold will be supported due to the tendency to lower interest rates by some of the world's Central banks, which aim to further monetary policy easing, and also due to continuing uncertainty of the global economy.
Today, a “quiet order" will come into force, which means that public comments will be banned before the Fed's meeting on September 20-21.
At 12:00 (GMT+3) the head of the ECB, Mario Draghi will give a speech. His comments usually have a strong influence on the financial markets. If his comments will be different from his Thursday’s speech volatility in the market will dramatically increase.