Futures indicated a 42 percent chance that the Fed will raise rates as early as next month, up from 22 percent a week earlier, with USA economy watchers turning their attention to payrolls data later this week.
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At the recently-concluded Jackson Hole Symposium, Fed Chair Janet Yellen said the case for raising interest rates was “strengthening”. “With investors pricing in a greater likelihood of a Fed rate increase before year end, pressure is likely to continue to weigh on gold”, MKS said in a note.
In an interview after the speech, Fed vice-chair Stanley Fischer reinforced Yellen’s comments by stating that Yellen’s speech was “consistent” with a possible two rate hikes this year, while Atlanta Fed president Dennis Lockhart also said two rate hikes this year was possible. Fischer said Friday’s nonfarm payrolls report for August was likely to be vital to the decision over an increase in the near term. Later that day Vice Chair Stanley Fischer suggested a hike was possible as soon as September and on Tuesday he said the US job market was almost at full strength.
Christopher Vecchio, currency analyst at DailyFX, said that Yellen’s comments had pushed up the odds of a December 2016 rate hike from 44 percent on Thursday to 65 percent by the time the closing bells rang on Friday.
“The market is now pricing around a 36 percent probability of a hike in September and it has moved from about 50 to 60 for December, which is considerably higher than a week ago”, said Rabobank’s USA -focused economist, Philip Marey. Spot gold touched its lowest since July 26 at $1,314.70, and was down 0.1% at $1,319.80 an ounce at 1.45pm GMT. British markets are closed for a holiday. “We’re seeing a little bit of USA dollar strength with crude oil weaker” and that’s adding some weakness to commodity currencies, he said.
The S&P 500 .SPX was up 12.28 points, or 0.57 percent, at 2,181.32.
“At some point, if the Fed thinks the market misunderstands, there’s a very clear way that they can realign those expectations, and that’s by saying, look our economy is in very fine shape”.
The dollar added 0.2 per cent to 102.14 yen, moving back towards Monday’s high of 102.39.
Nasdaq 100 e-minis were down 10 points, or 0.21 percent, on volume of 16,779 contracts. “It’s obvious that the dollar will lose momentum if U.S.jobs data (due out Friday) disappoints”.
West Texas Intermediate fell 1.5 percent to $46.91 and Brent shed 1.4 percent to $49.23. USA gold futures for December delivery were down $2.80 an ounce at $1,323.10.
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Gapen continued that Yellen’s speech on Friday demonstrated “confidence” in the economic outlook and the confidence stems from the improving labor market since mid-year and a rebound in household spending.
