The precious metal gold fell to a new low on Wednesday following the release of the minutes of the FOMC meeting held last month, which sounded so hawkish. It allowed another 50 or 70 basis points interest rate hike in July. This caused a major panic in the forex market yesterday, leading investors to sell off their risky assets, especially XAUUSD, for less risky investments ahead of the anticipated interest rate hike in July. Gold was freely handed to the bears, driving the price to a low of $1732 recorded on Wednesday.
Gold is currently seeking a recovery during the Asian session today after losing over 800pips in less than 48hours, falling from $1812.20 to a new monthly low at $1732.30. The price is currently ranging at $1740. The relative strength index (RSI) shows that gold is in an oversold position and set for a short recovery. However, investors are anxiously awaiting the NFP report tomorrow to determine the next direction for gold.
How does the NFP report affect gold?
The Non-Farm Payroll (NFP) report, usually released every First Friday of the month, is an important economic data that measures the unemployment rate in the country. The unemployment rate is an essential financial data used to measure the strength of the US economy. An increase in the unemployment rate has a gross negative implication for the dollar index. This will favor gold and trigger its recovery. However, reducing unemployment will send gold to a deeper grave and strengthen the dollar.
FOMC Minutes remain hawkish as Dollar Index hits 20-year high
The dollar index (USDX) climbed to its highest level in twenty years on Wednesday after the Minutes of the Federal Open Market Committee (FOMC) meeting held from 14th-16th June turned out to be hawkish. The monetary policy committee reinstated commitments to fighting inflation at all costs. A further pledge was included to its readiness to consider another interest rate hike in July as long as inflation persists.
A further interest rate hike of either 50 or 70 basis points could be appropriate in July. This could revive tensions in the forex market and push the dollar index (USDX) to a new all-time high at 107.2, marking its highest level in twenty years. This massive rise in the dollar index had triggered a major selloff on other currencies paired with the US dollar, such as EURUSD, GBPUSD, NZDUSD, AUDUSD, etc. These sets of currency pairs having US dollars as their counter pairs were pushed to their lowest points over the decades. EURUSD attained a new low in over twenty years at $1.0139. GBPUSD printed a new low at $1.1875 before rising again to its current position at $1.19999 during the Asian session today. NZDUSD created a new low at 0.6123.
Conversely, currency pairs with the US dollar printed an all-time high in the market as their base currency. USDCAD carved out a new high on Wednesday at $1.3082; USDCHF formed a monthly high of $0.974; USDPLN printed a new high at $4.7101.
Prices are currently recovering again. However, investors are looking forward to the NFP report being released today, which will determine the next direction for the dollar index.