On Wednesday, Gold (XAU/USD) experienced a notable uptick, climbing by one percent into the $2,330s following the release of lower-than-expected US inflation data. The data indicated a cooling trend in both headline and core Consumer Price Index (CPI) figures for May, raising speculation that the Federal Reserve (Fed) could implement interest rate cuts sooner than previously anticipated. Lower interest rates are typically favorable for Gold as they diminish the opportunity cost of holding the non-yielding asset.
The US Bureau of Labor Statistics reported that headline inflation remained flat on a month-over-month basis and increased 3.3% year-over-year, which fell below economists’ expectations of a 0.1% monthly rise and a 3.4% annual increase. Core CPI, which excludes volatile food and energy prices, rose 0.2% month-over-month and 3.4% year-over-year, also below expectations.
The release of this data prompted a significant shift in market expectations regarding Fed policy. The probability of a rate cut by September surged to nearly 70%, up from 53% prior to the data release, according to the CME FedWatch tool.
Investors are now focused on the conclusion of the Federal Open Market Committee (FOMC) meeting at 18:00 GMT, where the Fed is expected to announce its policy decision. While no immediate interest rate changes are anticipated, market participants are keenly awaiting updates to the Summary of Economic Projections (SEP), particularly the “dot-plot” graph that illustrates Fed members’ outlook on future interest rate movements. These updates could provide further clarity on the Fed’s stance and its response to evolving economic conditions.
