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13 January 2022,06:32

Weekly Outlook

Fed Expected to Expedite Rate Hikes as US CPI Beats Expectations

13 January 2022, 06:32

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On January 12 (Wednesday) afternoon (GMT+2), the United States announced its year-on-year, not seasonally-adjusted Consumer Price Index (CPI) for December. US CPI rose 7% in 2021, the largest 12-month gain since 1982, according to data released by the Labor Department. CPI rose 0.5% month-on-month in December, slightly beating the market expectations of 0.4%.

The strong rise in CPI was largely due to rising shelter costs and used vehicle prices. This data has reinforced expectations that the Fed will start raising interest rates as early as March. Unprecedented demand for commodities, combined with capacity constraints related to the supply of labour and materials has made the high inflation more stubborn and pervasive than the Fed has forecast.

Post-Market

Spot gold rose on Wednesday, hitting a near one-week high and impacting the dollar. USD hit a two-month low after U.S. inflation recorded its biggest annual rise in nearly 40 years. The dollar’s fall has made gold more attractive to overseas investors.

Suki Cooper, an analyst at Standard Chartered Bank, has said that although the market still expects the Fed to raise interest rates for the first time in March, gold prices are still performing “remarkably well”. Cooper also added that while gold historically tended to price in rate hikes early, “Price action suggests that the market has priced in rate-hike headwinds and the scope for near-term USD strength.”

However, David Meger, director of metals trading at High Ridge Futures, has expressed that increasing inflationary pressures will probably keep gold supported in the coming weeks. Overall, a decline has emerged for the dollar, and the price of gold is expected to continue rising in the short term.

In addition, investors are recommended to pay close attention to the upcoming US Initial Jobless Claims data for the week of January 8, which will be announced at 15:30 (GMT+2). Please control your positions and do a good job in risk management.

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.

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