With the USD gathering strength during the American trading hours on Wednesday, XAU/USD extended its slide and lost nearly 5% in a two-day span to touch its lowest level in six weeks at $1,767 on Thursday.
In its updated Summary of Economic Projections, the FOMC revealed that seven policymakers saw a lift-off in the fed funds rate from zero in 2022, compared to four policymakers in March’s publication.
During the press conference, FOMC Chairman Jerome Powell acknowledged that they are not dismissing the possibility of inflation staying high for longer than expected.
The hawkish shift witnessed in the Fed’s dot plot and Chairman Powell’s cautious comments with regards to the inflation outlook triggered a USD rally.
On Thursday, the US Department of Labor said that the Initial Jobless Claims rose to 412,000 in the week ending June 12.
Louis Fed President James Bullard’s comments provided an additional boost to the USD and the DXY stretched its weekly rally, making it difficult for XAU/USD to erase its losses.
In case these reports reaffirm the view that inflation will continue to rise, the USD could gather additional strength and weigh on XAU/USD.
Finally, the BEA will publish the Core Personal Consumption Expenditures Price Index, the Fed’s preferred gauge of inflation, on Friday.
On the daily chart, the Relative Strength Index indicator dropped below 30 for the first time since early March, suggesting that the pair could stage a technical correction before the next leg down.
Although the one-week viewpoints to a near-term consolidation with an average target of $1,768, additional losses are expected on one-month and one-quarter views.
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The Fed surprised markets with an abrupt hawkish shift that has triggered substantial volatility in currency markets.
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