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MARKETS: Fed caution pressures Dollar, Gold edges higher

13 July, 2017

By Lukman Otunuga, Research Analyst at FXTM

It has been an eventful week for the financial markets, as comments from central bank heavyweights which fuelled monetary policy speculations and political uncertainty in Washington, breathed life back into the currency and equity markets.


 
Fed Chair Janet Yellen was the talk of the town after catching investors unaware by adopting a dovish stance in her testimony before Congress. While Yellen reiterated her mantra on how the US central bank plans to continue ‘gradually’ tightening monetary policy, there were concerns raised over low inflation despite an improving economy. With the Federal Reserve potentially scaling back on its expected pace of monetary policy normalisation if inflation fails to pick up, Friday’s pending US CPI report is a big deal and will be closely observed.
The main takeaway from Yellen’s testimony was that although she remained optimistic over the health of the US economy, this was masked by concerns about persistently low inflation. Dollar-bullish investors struggled to find inspiration from Yellen’s optimism during Thursday’s trading session, with the Dollar Index edging towards 95.75. With political risk at home and the appearance of doves enticing bears, the Dollar may find itself vulnerable to further losses.

Commodity spotlight – Gold

Gold prices edged lower on Thursday after Yellen expressed some optimism over the health of the US economy in her testimony before Congress. Although the yellow metal remains bearish on the daily charts, the Fed’s concerns of low inflation and continuous focus on ‘gradual’ rate hikes may support the zero-yielding metal.
With the Dollar under noticeable pressure and political risk in Washington stimulating risk aversion, bulls could be inspired to conquer $1,230. From a technical standpoint, although repeated weakness below the $1,240 resistance is likely to keep bears in the game, a break above $1,230 could be early signs of bulls making a comeback.

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