Stocks gain, dollar sags as Fed chief shores up rate cut prospects

Gold and Metals Rally as Fed's Powell Hints a Rate Cut in July

Gold and Metals Rally as Fed’s Powell Hints a Rate Cut in July

Gold prices scaled a more than one-week peak on Thursday, as the dollar slipped after dovish remarks from the US Federal Reserve Chairman Jerome Powell boosted the case for an interest rate cut later this month.

Gold prices appear to be in overbought territory and we could see some consolidation here as markets have already heavily priced in the beginning of the Fed's easing cycle and the growing expectations the other major central banks will be delivering additional stimulus.

"At the end of the day, there has to be a connection because low employment will drive wages up and ultimately higher wages will drive inflation, but we haven't reached that point".

Stocks in May exceeded the five-year average - a yardstick OPEC watches closely - by 25 million barrels. Even though the Fed has kept rates low and mortgage rates have fallen, those factors have pushed developers to build higher-priced homes to cover the bigger costs. It's a prospect that has delighted investors, who have lifted stock indexes to record highs. A relationship between the two existed "50 years ago" but that has gotten "weaker and weaker and weaker", Powell said.

"It's very important this expansion continue as long as possible", Powell said. The Fed has raised rates nine times since 2015, four increases coming under Powell's leadership. It is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.

"Facebook's planned products may ultimately be meant to establish a parallel banking and monetary policy system to rival the dollar". But the Fed has reasons to worry when inflation stays consistently below its target level.

This was the 11th month in a row that core inflation has been reported in line with, or above, the Federal Reserve's target of 2%.

Once such low expectations become entrenched, Powell warned in congressional testimony Wednesday, they're hard to dislodge.

Just a hint that the US Federal Reserve may go in for an interest rate cut was enough to send a whole basket of Asian currencies, including the Indian Rupee, getting stronger against the US dollar.

Powell told the House Committee on Wednesday that the central bank will "act appropriately" to sustain the U.S economic expansion as "crosscurrents" are haunting the economic outlook. Although the bank's preferred measure of price pressures, the personal consumption expenditures price index, has been stuck in a 1.5%-to-1.6% range for much of 2019 after falling late past year.

USA shares touched record highs after Powell, in his first day of testimony before Congress on Wednesday, confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war and said the Fed stood ready to "act as appropriate."Powell was testifying before the Senate Banking Committee on Thursday".

Powell and other Fed officials have expressed hope that a rate cut will make it cheaper to borrow and buy a home or vehicle or make other purchases and thereby speed the economy.

Higher inflation does offer some benefits.

The process is likely to take more than a year, he said. Almost all officials cut their forecasts for the short-term rate that the Fed controls, compared to the previous meeting, the minutes said.

"Most indicators suggest that inflationary pressures are benign - commodity prices are declining and the strong USA dollar is weighing on import prices and domestic goods prices", Levy said.

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