US dollar falls, gold prices rise as high inflation fears quelled

Data current as of 2/29/2024 Key points USD/JPY reverses from highs: (0:30) Gold prices back near highs: (1:39) Inflation continues towards 2%: (2:59) FOMC projections still within reason: (4:03) How much further can USD fall?: (5:49) USD/JPY's rapid reversal USD/JPY fell below 150.00 Thursday morning following PCE inflation data from the US, nearing 149.20. This roughly 100 pip decline is significant because while 150.00 is historically near the top of the range for USD/JPY, the pair has been quite comfortable above that price in 2024. Minimal news from the Bank of Japan has caused USD/JPY to react heavily to US data in recent trade. Resurgence in gold prices Concurrently, gold has rebounded impressively, vaulting back above the $2050 mark. This rally reflects investors' growing appetite for safe-haven assets amid softening rate expectations and the latest inflation data. Gold's near return to its highs demonstrates its status as a perennial refuge in times of uncertainty, with traders often turning to the precious metal as a hedge against inflation and currency devaluation. PCE inflation and FOMC outlook The latest data from the PCE Price Index came in line with expectations, reflecting a Core PCE for January at 2.8%. This move from December's 2.9% reading marks the 12th consecutive decline in Core PCE and a steady movement towards the Federal Reserve's 2% inflation target. After CPI data earlier in the month raised questions around potential rate cuts and their relevance, this PCE data makes the FOMC's multi-year rate projections appear plausible. Several rate cuts are expected in 2024, and cooling inflation would be the primary signal to the FOMC that the US economy is ready for softer interest rates. USD's potential trajectory With USD/JPY still significantly elevated from its early 2024 levels under 142.00, the question arises: how much further can the US dollar fall? The currency's position over 700 pips above its starting point for the year indicates room historically for further adjustments, contingent on forthcoming economic indicators and policy decisions. This uncertainty underscores the importance of closely monitoring market signals and central bank guidance for clues on future movements. In summary, the latest shifts in USD/JPY and gold prices amid evolving inflation expectations and economic data offer valuable insights into market sentiment and potential trends. As investors and traders navigate these developments, staying informed and adaptable will be key to understanding and capitalizing on the opportunities that lie ahead in the complex landscape of global financial markets.
Publication date:
2024-03-04 13:35:01 (GMT)

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