Gold Prices and Key Levels
Gold prices surged back to 2310, retesting the 2340 level. The key zones to focus on are 2315 and 2325. This movement reflects a significant retracement and potential consolidation at these levels, highlighting the importance of monitoring these zones for future price action.
US Treasury Yields and Market Reactions The US Treasury markets responded to the recent data and Federal Open Market Committee (FOMC) meeting with a dovish interpretation, despite the mixed messages of the day. The yields on the 2-year US Treasury note dropped by 8.2 basis points, while the 10-year yields fell by 8.8 basis points to 4.316%. However, these yields had declined further before the FOMC meeting took place. The current outlook on Fed funds futures suggests about one and three-quarters rate cuts, aligning closely with the new dot plot median.
US May CPI Data The US May Consumer Price Index (CPI) data came in better (lower) than expected. The headline CPI index remained flat compared to the previous month, causing the annual headline inflation rate to decline to 3.3% from 3.4%. More notably, the core CPI rate, which excludes food and energy prices, rose by 0.2% month-over-month. This increase was a "low" 0.2% (0.163 to three decimal places) and aligns more closely with the Federal Reserve's target for inflation control. Consequently, the core inflation rate decreased to 3.4% year-over-year from 3.6%.
FOMC Meeting and Future Rate Cuts Following the release of the CPI data, the Federal Reserve issued a statement with a dovish tone, reflecting progress on inflation. However, the updated dot plot indicated a shift from the anticipated three rate cuts this year to just one, although this decision was closely contested. This shift has important implications for market expectations and the future path of monetary policy.
Market Implications and Outlook The combination of lower-than-expected inflation data and the Federal Reserve's adjusted projections has introduced a degree of uncertainty into the markets. Investors are now recalibrating their expectations regarding future interest rate cuts and the broader economic outlook. This dynamic underscores the importance of closely monitoring upcoming economic data and Fed communications.