On Thursday (November 14), in the Asian market early trading session, spot gold fluctuated narrowly around $2,572. Gold prices fell for the fourth consecutive trading day on Wednesday, reaching $2,569.25 per ounce, the lowest since September 19, under the dual pressure of a strengthening dollar and rising U.S. bond yields. The latest data from the U.S. Department of Labor showed that the Consumer Price Index (CPI) increased in line with expectations for October, but the progress of inflation decline since mid-year has significantly slowed, which might affect the Federal Reserve's plan to cut interest rates next year.
In the foreign exchange market, the dollar rose to near a seven-month high against a basket of major currencies, while the yield on the 10-year U.S. Treasury note approached the four-month high reached last week. The market's expectation of a Fed rate cut in December has risen, with the odds now at 82% for a 25-basis-point cut, up from 58% before the data release.
However, the market is also concerned that if new tariff policies exacerbate inflation, it could force the Fed to pause its easing cycle. With the release of key data such as the U.S. October Producer Price Index (PPI) and initial jobless claims, investors need to continue to closely monitor speeches by Fed Chair Powell and other officials. Some voices within the Fed have already expressed concerns about inflation risks, indicating that there may be limited room for further rate cuts.
This week, Fed officials stated that despite signs of a cooling labor market, inflationary pressures remain, and rising costs in housing are driving core CPI growth. The Consumer Price Index rose 0.2% month-on-month for the fourth consecutive month, in line with expectations, with over half of the increase attributed to rising housing costs.
The Fed is also reassessing its policy direction internally. St. Louis Fed President Morsalem and Dallas Fed President Logan indicated that if inflation does not approach the Fed's 2% target, further rate cuts may be needed; however, excessive cuts could accelerate inflation, which might require a shift back to tightening.
Recent polls show a victory for Republican candidate Trump in the election, with voters' concerns about inflation influencing the voting results. If Trump continues to push for tax cuts and increases in import tariffs, inflation could further intensify, increasing the Fed's difficulty in addressing inflation.
Analysts believe the Fed might still cut rates by 25 basis points at the December meeting, but the room for further cuts next year is expected to be limited, especially considering that the neutral rate may have already risen, making the current policy's suppressive effect not evident.
