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Market News 【Market Morning】Dollar slips from 16-month highs, Gold steadies, Oil slips

【Market Morning】Dollar slips from 16-month highs, Gold steadies, Oil slips

Gold steadies but Fed's hawkish stance limits advance; Oil slips awaiting OPEC+ response to U.S.-led crude release, Dollar slips from 16-month highs.

TOPONE Markets Analyst
2021-11-26
361

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Yesterday Market Review


Gold steadies but Fed's hawkish stance limits advance


Gold prices edged up on Thursday buoyed by persistent inflation concerns, with further gains in bullion clipped by expectations that the Federal Reserve may hasten its monetary tightening to tame rising prices.


Spot gold rose 0.12% to $1,790.70 per ounce, recovering some ground after slipping to its lowest since Nov. 4 on Wednesday. U.S. gold futures gained 0.4% to $1,791.40.


Trading is likely to be thinned by the U.S. Thanksgiving holiday.


"Gold still has some recovery potential on anticipation of high inflation figures. But essentially, with the Fed pursuing the ongoing tapering, that should push up real rates at a later stage," keeping prices volatile, said UBS analyst Giovanni Staunovo.


Although bullion is considered a hedge against rising inflation, interest rate hikes tend to push government bond yields up and thereby raise the opportunity cost of holding gold.


A growing number of Fed policymakers indicated they would be open to speeding up the elimination of their bond-buying program if high inflation held and move more quickly to raise interest rates, minutes of the central bank's last policy meeting showed. read more


In the wake of Wednesday's strong economic data from the U.S., including a sharp drop in weekly jobless claims, calls for a faster taper are expected to rise when the Fed meets next on Dec. 14-15, said CMC Markets UK's chief market analyst Michael Hewson in a note. read more


Gold also tracked moves in the dollar index (.DXY), which eased off an over 16-month high.


"The prevailing sentiment is that the price of gold will be facing some headwinds," and bullion could face significant resistance around the $1,800 - $1,810 levels, said Ricardo Evangelista, senior analyst at ActivTrades.


Spot silver rose 0.4% to $23.62 per ounce, platinum gained 1.6% to $989.78, and palladium advanced 1.5% to $1,879.18.


Oil slips awaiting OPEC+ response to U.S.-led crude release


Oil prices ticked lower on Thursday with investors waiting to see how major producers respond to the emergency crude release by major consuming countries designed to cool the market, even as data pointed to healthy U.S. fuel demand.


U.S. West Texas Intermediate (WTI) crude futures fell 9 cents, or 0.1%, to $78.30 a barrel at 0201 GMT, extending an 11 cent loss on Wednesday.


Brent crude futures slipped 5 cents to $82.20 a barrel, after losing 6 cents on Wednesday.


“The coordinated SPR (Strategic Petroleum Reserve) release may end up as a near-term political win for the parties involved, however we do not expect it to have a lasting impact on crude fundamentals,” Fitch analyst Jake Leiby said in a note.


Analysts said U.S. Energy Information Administration data on Wednesday showed gasoline and distillate stockpiles fell more than expected even as crude stocks rose suggesting the market needed more crude.


“But the bigger picture is that product demand remains healthy, adding pressure to a tightening market,” Capital Economics economist Kieran Tompkins said in a note.


All eyes are now on the Organization of the Petroleum Exporting Countries, Russia and allies, together called OPEC+, who are due to meet next week to discuss oil demand and supply.


“The bold move from the oil importers has opened the door wide open for OPEC+ to adjust its supply policy downwards at its next (meeting on) 2 December 2021,” Rystad Energy analyst Louise Dickson said in emailed comments.


The group has been adding 400,000 barrels per day of supply each month unwinding record output cuts made last year when pandemic curbs slammed demand.


Three sources told Reuters OPEC+ is not discussing pausing its oil output increases, despite the decision by the United States, Japan, India and others to release emergency oil stocks.


Traders are also looking out for whether China will follow through on plans to release oil from its reserves.


Dollar slips from 16-month highs


The dollar slipped overnight but was still close to its highest since July 2020 against the euro on Thursday after U.S. Federal Reserve meeting minutes reinforced market expectations that the Fed will raise rates sooner than other major central banks.


The dollar has strengthened so far this month as currency markets have been driven by investors favouring currencies of countries with more hawkish central banks.


Minutes from the Nov. 2-3 meeting indicated the Fed had become more concerned about rising inflation as various policymakers said they would be open to speeding up the taper of their bond-buying programme if high inflation held and move more quickly to raise interest rates.


Data on Wednesday showed U.S. jobless claims were at a 52-year low, consumer spending increased more than expected in October and inflation rising.


The dollar index reached a 16-month peak late on Wednesday but eased overnight and was down 0.2% on the day at 96.664 at 0838 GMT on Thursday. It has gained around 2.7% so far this month.


Versus the Japanese yen, the dollar was close to a five year peak.


“The USD is dominating trading across G10 FX,” wrote ANZ strategists John Bromhead and Daniel Been in a note to clients.


“With the Thanksgiving holiday now upon us, we think a period of tactical consolidation might be close.”


The euro was up 0.2% versus the dollar at $1.12215 , a slight recovery. But the euro has still lost around 2.9% so far this month, weighed down by expectations that the European Central Bank being more dovish than the Fed, as well as, more recently, a new wave of COVID-19 restrictions in Europe.


“Given that this particular trade-weighted measure of the dollar is heavily skewed to European currencies, the combination of a bullish Fed and fourth waves in Europe is making the DXY (dollar index) look very bid,” wrote ING currency strategists in a note to clients.


A surge in coronavirus infections in Germany and unusually high inflation rates are weighing on the consumer morale in Europe’s largest economy, a survey showed on Thursday.


The Australian dollar - seen as a liquid proxy for risk appetite - was steady at $0.7187.


The New Zealand dollar was down 0.1% at $0.6866, languishing near the three-month low of $0.6856 hit the previous day, when the country’s Reserve Bank raised the key rate by a quarter of a percentage point, disappointing bulls hoping for a half point increase.

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