FX: CPI is more convincing than Powell, and gold has risen above 1980 in the short term!

      On Thursday (July 20) in the Asian market, gold rose above $1980 in the short term, and the bullish sentiment of precious metals was strong. The People's Bank of China and the State Administration of Foreign Exchange raised the macro-prudential adjustment parameters for cross-border financing from 1.25 to 1.5, stimulating the rise of the RMB and suppressing dollar buying. Gary Wagner, a special analyst at Kitco, said that the Federal Reserve must stop raising interest rates. He believes that the slowdown in the inflation of the US Consumer Price Index (CPI) is more convincing than that of Federal Reserve Chairperson Powell. Relying on data is a long-term principle. He envisioned that gold is on the road to a new high of $2,100.

　　In order to further improve the macro-prudential management of full-scale cross-border financing, continue to increase cross-border funding sources for enterprises and Financial Institutions Groups, and guide them to optimize their asset-liability structure, the People's Bank of China and the State Administration of Foreign Exchange have decided to raise the macro-prudential adjustment parameters for cross-border financing of enterprises and Financial Institutions Groups from 1.25 to 1.5, which will be implemented immediately from Thursday.

　　USD/RMB fell short-term, falling to 7.1770.

　　According to CME's Fed Watch Tool Forecast, there is a 99.8% chance that the Federal Reserve will raise interest rates by 0.4% at the end of the next FOMC meeting on July 26. The July rate hike is also likely to be the end of the Fed's series of rate hikes that began in March 2022. The latest CPI and Producer Price Index (PPI) reports suggest that inflationary pressures are waning and getting closer to reaching the Fed's 2% target.

　　The CPI peaked at 9.1%, having retreated to 3% in June. The producer price index, or all goods minus food and energy, fell 0.2% through June. A survey conducted by the University of Michigan showed consumer confidence surged to 72.6% in July, 13 percentage points higher than in June.

　　If the Fed is as "data-dependent" as they have long claimed, Mr. Wagner noted, the recent reports suggest that the US economy has contracted sharply, reducing inflation.

　　The CME's probability indicator forecasts an 87.9% probability that interest rates will remain unchanged at the September FOMC meeting, a 71.8% probability that interest rates will remain unchanged in November, and a 64% probability that interest rates will remain unchanged in December.

　　THE HILL opinion writer Avraham Shama, in an article titled "Fed Raises Rates Again: A Mistake That Could Trigger a Recession," warns that if the Fed wants to best serve the U.S. economy, it must stop raising interest rates to avoid a recession.

　　"The Fed and its chairperson, Jerome Powell, failed to recognise a warming or cooling economy in time to take quarterly actions to minimise the negative impact," he said.

　　He discussed the series of missteps that began with the Fed's premature tightening of monetary policy in 2019, which required a pivot to reverse the trend. He pointed out that the Fed waited too long to initiate its first rate hike in March 2022, when inflation was already above 8%.

　　Gold technical analysis

　　FXTForeign exchange representation,Gold priceHit the highest value of the year when gold briefly touched $2,083 before pulling back to a low of $1,900 on June 20. Today, the August contract with the most active basis for gold futures is down slightly by $0.40 or 0.02% and is fixed at $1980.40.

　　It is reasonable to assume that market sentiment would be more bullish if it became clear that a series of rate hikes was over. More importantly, when the Fed does initiate its first rate cut, possibly as early as the first quarter of 2024, one would expect bullish sentiment to return, allowing gold prices to challenge recent all-time highs of just below $2,100 an ounce.

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