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Federal Reserve Chairman Jerome Powell acknowledged Tuesday that some inflation pressures are stronger and more persistent than he had anticipated, though still not on par with some of the worst episodes the U.S. has seen historically.

Fed will not raise rates on inflation fears alone, Powell says

Federal Reserve Chair Jerome Powell on Tuesday reaffirmed the U.S. central bank's intent to encourage a "broad and inclusive" recovery of the job market, and not to raise interest rates too quickly based only on the fear of coming inflation.

Promises price stability

Committee Republicans repeatedly pressed Powell on whether the economy was headed toward the hyperinflation of the 1970s and early ’80s when inflation peaked above 10%.

Powell said such a scenario is “very, very unlikely.”

 

·         Pre-Powell jitters put gold on the backfoot

Gold retreated on Tuesday as traders awaited testimony from U.S. Federal Reserve chair Jerome Powell for any more clarity on monetary policy after the central bank struck a hawkish tone last week.

Spot gold fell 0.3% to $1,777.91 per ounce by 1:35 pm EDT (1735 GMT), while U.S. gold futures for August settled down 0.3% at 1,777.4.

 

·         Copper edges higher ahead of Fed chair's testimony

Copper prices edged up from 10-week lows on Tuesday as investors wait to see if Federal Reserve chair Jerome Powell will give guidance on the pace of U.S. monetary tightening in testimony to Congress beginning at 1800 GMT.

Signals from the Fed that it would start raising interest rates sooner than expected sent prices of riskier assets like equities and metals tumbling last week.

They also boosted the dollar, making metals costlier for buyers outside the United States.

Benchmark copper on the London Metal Exchange (LME) reached a record high of $10,747.50 a tonne in May but fell 8.6% last week and touched a low of $9,011 a tonne on Monday.

In official trading on Tuesday, it was up 0.4% at $9,217 a tonne.

 

·         Gold Price Forecast: XAU/USD stays pressured near $1,780 despite risk-on mood

Gold (XAU/USD) portrays a subdued performance during Wednesday’s Asian session following the recent inability to keep the bounce off intraday low while retesting $1,778 level. Although the post-Powell risk-on mood favors gold buyers, a lack of major catalysts and wait for monthly PMIs seem to restrict the latest moves. Also acting as the momentum filters is the uncertainty over US President Joe Biden’s infrastructure spending and fears of the Delta Plus variant of the coronavirus (COVID-19).

Fed Chairman Jerome Powell matched expectations of citing employment as the reason to keep easy money policy rolling, others from the clan, namely Cleveland Fed President Loretta Mester and New York Fed President John Williams were also against policy adjustments for now.

Gold prices are consolidating at the bottom of the recent drop from above $1,900 as the US dollar slides in on an area of a support structure identified in the DXY on 15th April in the 91.60s.

DXY has dropped from a high 92.1380 to a low of 91.6450 and failed to find support on comments from the Federal Reserve's chair, Jerome Powell.

Powell said it is difficult to know how long some of the transitory impacts on inflation will last but thinks we should be through it in a year’s time.

The US 10-year yield eased over 2bps to 1.4630%.

Numerous Fed speakers dialled back the hawkish theme in comments on Wednesday,

Cleveland Fed President Loretta Mester said that now is not the time to end accommodative policies while New York Fed President John Williams argued that there is still plenty to go until full employment.

 Williams said a rate rise is a “way off” and he expects inflation will fall back to 2.0% next year.

Meanwhile, San Francisco Fed President Mary Daly argued that the conditions for tapering may be met later this year or early next year.

The Fed had surprised the market last week with a hawkish hold which set off forex volatility as traders managed to flows and repositioning as the markets adjusted for a rise in interest rates and end emergency bond-buying sooner than expected.

Analysts at TD Securities explained, ''the Fed's decisively hawkish tone has killed inflation risk premium as it pencilled in two hikes for 2023 — signalling a change in reaction function, which challenges their credibility for average inflation targeting. In any case, the Fed isn't behind the curve by any means, which removes the immediate impetus to buy gold.''

 

Gold technical analysis

The bulls are set on a 38.2% Fibonacci retracement of the daily bearish impulse that comes in at $1,814 meeting the 13th May support area and the 10-day EMA.

However, the price is back in bearish territory considering it has failed to hold above the prior daily bullish close.

Nevertheless, a surge to the upside resistance would leave a W-formation on the charts that could result in a restest of the current highs while markets await the next catalyst in US jobs data in particular.

 

·         S&P 500 jumps for a second day, Nasdaq hits all-time high amid bitcoin’s comeback

 

·         Bitcoin drop below $30,000 sparks fears of another crypto winter — here’s why bulls aren’t worried

 

·         Fed's Mester flags financial stability concerns in central bank accommodation

Cleveland Federal Reserve bank president Loretta Mester said Tuesday that the extended low interest rates, ongoing bond purchases, and loose-policy promises that central banks have used during the coronavirus crisis could pose financial stability risks over time.

 

·         Fed's Daly says could get to taper threshold late this year

 

·         BOJ policymakers saw prospects of quicker recovery in April – minutes

·         Japan's June factory activity expands at slowest pace in 4 months
The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 51.5 in June from a final 53.0 in the previous month, largely due to a sharp decline in output.

CORONAVIRUS UPDATES:

 

·         Fauci declares delta variant ‘greatest threat’ to the nation’s efforts to eliminate Covid

White House chief medical advisor Dr. Anthony Fauci said Tuesday the highly contagious delta variant is the “greatest threat” to the nation’s attempt to eliminate Covid-19.

Delta, first identified in India, now makes up about 20% of all new cases in the United States, up from 10% about two weeks ago, Fauci said during a White House news conference on the pandemic.

 

·         Asia needs to keep Covid under control before the Fed hikes rates, says economist