GOLD PRICES are trading at its lowest level since August 28th 2017 after the Federal Open Market Committee put the option of an interest rate hike before the end of the year back on the table, writes Atsuko Whitehouse at BullionVault.
Dollar Index, measuring the US currency against a basket of other currencies, surged 0.5% as soon as the announcement was made. The yield on 10-year Treasuries is rose to 2.27 percent, reaching the highest in more than seven weeks on its fifth consecutive advance.
The Fed made no change to the 1.25% ceiling on its key interest rate, but Wednesday’s new forecasts repeated the committee’s view from June of one more hike to 1.50% before year-end.
A December hike was already expected by the interest-rate market ahead of Wednesday’s decision, with betting on Fed Funds futures seeing a 62% probability.
Those odds rose above 70% as stocks and gold prices fell immediately after the announcement, jumping from the 37% possibility seen by interest-rate betting just a month ago.
“The lack of movement in the dot [plot] signals that the committee is still comfortable that the recent dip in inflation is a blip,” said Rob Carnell, Asia head of research at ING,in a note. The dot plot charts Fed members’ targets for future interest rates.
“In the bigger picture, I still see the price action as corrective. It should base in this $1,280-$1,296 region. I see global uncertainty, diversification as continuing to underpin gold for now,” said Jeffrey Halley, a senior market analyst at OANDA.
In contrast to the FED, as widely expected the Bank of Japan left its policy unchanged by maintaining its bond-purchase plan in which its holdings increase at an annual pace of 80 trillion yen ($717.6 billion). It also maintained its short-term interest rate target at minus 0.1 percent and the 10-year government bond yield target of around zero percent.
However new board member Goushi Kataoka dissented to the BOJ’s decision to hold its interest rate targets, saying current monetary policy was insufficient to push inflation up to 2 percent during fiscal 2019.
Back in April this year, Japan’s parliament nominated banker Hitoshi Suzuki and economist Goshi Kataoka to the Bank of Japan board to replace two members who have frequently dissented against the policy direction set by Governor Haruhiko Kuroda.
“The nominations show Prime Minister Shinzo Abe wants the BOJ to continue the current reflationary stimulus program,” said Yasuhiro Takahashi, an economist at Nomura Securities Co.
The Japanese yen fell 0.2 percent to 112.49 per dollar, hitting its weakest level in more than two months.
“While the BOJ meeting will highlight the U.S.-Japan monetary policy divergence, the currency market is likely to take its policy decision in its stride,” said Ishizuki at Daiwa Securities.
The Nikkei ended 0.18per cent higher at 20,347.48 points, the strongest level since 18th August 2015.
In Europe the DAX was up 0.31% and CAC 40 advanced 0.53% on the back of the FED and BOJ decisions and also a report about a possible merger between two of Europe’s largest banks, Germany’s Commerzbank and French lender BNP Paribas. The FTSE100 is slightly down 0.08%
Silver prices fell harder than gold at 2.3% to $16.99 per oz after the FED announcement.