2016-10-18 13:05:11

The decline in the USD, which continues for the second consecutive day, has triggered the rise in the American stock indices and in gold prices.

Last week the index WSJ has grown to 7-month highs due to the increasing expectations of the interest rate hike in the USA until the end of this year. However, today, traders continue to take profits on the long positions, which added pressure on the USD. The rate increase in December has already been incorporated in the prices, and expectations of interest rate hike will now only cause gradual adjustment into prices.

It seems that the short-term rise in the USD has reached its peak and now correction will follow. However, it is still expected that the USD will remain in the black in anticipation of the rate hike.

Yesterday, Vice-President of the US Fed Stanley Fischer said that the Central Bank is very close to achieving target levels of employment and inflation. According to Fischer, unemployment rate of 5% means that the economy is close to full employment, core inflation rate of 1.7% is now close to the target level of 2%. Mr. Fischer also said that the Fed should prevent overheating of the economy, as it would lead to inflation.

Market expects that the Fed will raise rate by 0.25% at the meeting in December and some officials imply that these expectations are correct.

Meanwhile, as the USD is undergoing short-term downward correction, the price of gold is slightly increasing on Tuesday. The price has grown by $7 of Troy ounce at the beginning of the European session.

However, any decline in the USD and the rise in prices of the precious metals is just a short-term correction. The prices of precious metals and gold are unlikely to rise till the end of this year due to investors’ expectations of the interest rate increase in the USA. According to CME Group probability of the key rate hike in December is 69%.

The rise in the interest rate adds pressure on gold. This precious metal cannot compete with the other relatively safe assets due to the rising cost of borrowing.

Today’s US data will include: at 15:30 (GMT+3) US inflation indicators for September (consumer price indices). It is expected that the index will rise by 0.3% (+1.5% on annual basis).

If the data will be as expected, the USD will rise in the market, and in the pair XAU/USD.XAU/USD: Increasing expectations of the interest rate increase in the USA put additional pressure on gold.  Fundamental analysis for 18/10/2016