U.S. Dollar Strengthens, Pushes Gold Lower and Sends EUR/USD Sliding After US CPI
Key Takeaways
- U.S. dollar strengthened after U.S. inflation data, boosting the dollar index about 0.3%.
- Gold prices edged lower, spot gold down 0.3% and U.S. futures falling 1.1%.
- EUR/USD slipped, trading around 1.1587 as the euro weakened against the dollar.
CPI and dollar reaction
US consumer price index data for February came in line with forecasts — rising 0.3% month-on-month and 2.4% year-on-year — and that report pushed the U.S. dollar higher as markets reassessed the Federal Reserve’s policy path.
“Gold prices edged lower on Wednesday, weighed down by an uptick in the U”
Data showed the U.S. consumer price index rose 0.3% in February, in line with forecasts and above January's 0.2% increase.
The CPI rose 2.4% in the year to February, also matching expectations, and the dollar index inched up 0.3% after the release.
FXStreet noted that although the figures matched forecasts, "inflation pressure remains sticky and well above the Fed’s 2% target, suggesting policymakers may keep interest rates higher for longer."
Gold falls on rates
Gold moved lower as the stronger dollar and expectations of sustained policy rates dented demand for non-yielding bullion, even as safe-haven flows linked to the Middle East conflict provided intermittent support.
Peter Grant said, "The gold market seems to be in a push‑and‑pull between safe‑haven demand driven by the war and concerns over higher‑for‑longer interest rates."
At the same time, other precious metals fell: CNBC reported spot silver fell 3.1% to $85.67 per ounce, spot platinum lost 0.5% to $2,189.35, and palladium slipped 1.3% to $1,633.30, illustrating broad pressure across the complex.
FXStreet’s assessment that policymakers may keep rates higher for longer fed into the narrative that yields and a stronger dollar would cap gold’s upside.
Euro under pressure
EUR/USD slid as the euro struggled for support amid worries that rising oil prices and geopolitical risks could slow Eurozone growth even as price risks remain significant.
“Gold prices edged lower on Wednesday, weighed down by an uptick in the U”
FXStreet wrote that "the Euro has failed to draw support, as investors worry that higher Oil prices could weigh on economic growth in the Eurozone."
The outlet also quoted ECB Vice President Luis de Guindos: "price risks remain skewed to the upside, while risks to growth are tilted to the downside," and ECB Governing Council member Peter Kažimír warned a rate hike "may be closer than previously thought."
CNBC’s note that oil prices rebounded added to the market’s concern about the growth/inflation trade-off facing the ECB.
Fed path priced
Market-implied rates show investors expect the Fed to pause in the near term but to push back the timing of cuts, with the CME FedWatch Tool showing wide odds of no change at the next meeting and again in April while pricing a growing chance of cuts by midsummer.
FXStreet summarized the FedWatch Tool outcome: "According to the CME FedWatch Tool, markets widely expect the Fed to keep interest rates unchanged at next week’s meeting and again in April."
The same FXStreet piece also reported traders were pricing in a 36.2% probability of a 25-basis-point rate cut in June, rising to 51.3% in July, underscoring how the market has moved from expecting imminent easing to a later easing cycle.
Geopolitics and oil
Geopolitical tensions linked to the US-Iran confrontation added an important layer of uncertainty by threatening energy shipments and lifting oil prices, which in turn can feed through to inflation, currencies and safe-haven flows.
“Gold prices edged lower on Wednesday, weighed down by an uptick in the U”
CNBC reported that "Iran fired at Israel and targets across the Middle East, while at least three ships were hit in the Gulf," and that "oil prices rebounded as markets doubted whether the International Energy Agency's plan for a record release of oil reserves could offset potential supply shocks from the conflict."
FXStreet similarly warned that "geopolitical tensions from the ongoing US-Iran war are clouding the outlook for global monetary policy, as rising Oil prices risk fueling inflation, particularly in Europe."