Gold snapped a four-day losing streak after Federal Reserve Governor Lael Brainard defused traders’ fears that an increase in US interest rates is imminent. Within this category, consumer finance companies fell 2.3%, while banks closed off 1.7%.
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Investors now see less chance of a US rate hike next week after Federal Reserve Governor Lael Brainard on Monday warned against the Fed removing support for the economy too quickly.
The Aussie dollar, surprisingly strong through a period when expectations for easier monetary policy there have grown, was also down 0.4 percent.
Still, the dollar later received some support from buying to cover short positions, as shares resumed their ascent.
“Today’s new normal counsels prudence in the removal of policy accommodation”, said Brainard, a permanent voting member and the last official scheduled to speak ahead of the Fed’s policy-setting meeting on September 20-21.
US RATE FOCUS: The main point of interest in markets at the moment centers on the Fed and when it will raise interest rates again.
With both the US and Japanese central banks holding monetary policy meetings next week, the dollar-yen pair is expected to remain directionless for the time being, traders said. After two months of quiet trading, stocks are on track for their third big move in a row, after Friday’s big drop Friday and Monday’s rally.
Moreover, the USA bonds have been closely following developments in oil markets due to their impact on inflation expectations, which are well below the Federal Reserve’s target. Anadarko stock sank 45 cents to $57.34 and Freeport-McMoRan fell $1.02, or 9.2 percent, to $10.06. Dennis Lockhart, Atlanta Fed president, said in a separate speech that a “serious discussion” on raising rates is warranted at the central bank’s upcoming meeting.
CURRENCIES: The euro was flat at $1.1233 while the dollar rose 0.4 percent to 102.27 yen.
United States stocks opened sharply weaker on Tuesday, giving back some of the Fed-induced rally seen the previous session on reduced risk of a September rate hike. Late Tuesday, those contracts showed investors and traders assigned a 15% likelihood of a rate increase at the Fed’s September meeting, down from more than 30% earlier this month.
United States 10-year Treasury yields have edged a little lower again today following the comments from Brainard but remain above the levels seen for much of the last few months, perhaps reflecting the fact that expectations for December are still higher despite September appearing to be off the table.
Gold is sensitive to moves in USA rates.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent, reversing earlier gains, though the fall was far less than Monday’s 2.4 percent.
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Turning to European markets, Germany’s DAX gained 0.4 percent while France’s CAC-40 slipped 0.1 percent.
