Gold prices moved higher in yesterday’s session, with the move seemingly reflecting a down-shift in Federal Reserve rate hike expectations. Indeed, the metal moved inversely with the policy bets implied in Fed Funds futures contracts. Follow-through failed to materialize overnight however dovish commentary from BOJ Governor Haruhiko Kuroda. The central bank chief stressed policymakers’ readiness to boost stimulus and warned that tightening may not occur within his tenure.
This bolstered Japan’s benchmark Nikkei 225 stock index and sent USD/JPY higher, which echoed as broader US Dollar strength around the financial markets. Gold is denominated in terms of the greenback on global markets, so naturally this inherently weighed on prices .A stronger US unit likewise undermined anti-fiat demand for the yellow metal.
Crude oil prices jumped after EIA data showed an unexpected drawdown of 3.41 million barrels in the first week of May. The WTI contract managed a bit of follow-through in Asian hours, tracking shares higher amid a broad-based recovery in risk appetite. The risk-on mood was amplified by the aforementioned Kuroda commentary early in the session.
Looking ahead, all eyes are on the Bank of England as Governor Mark Carney and company deliver a monetary policy announcement as well as release an updated Quarterly Inflation Report. Traders will be most interested in officials’ views on the impact of the upcoming “Brexit” referendum on near-term monetary policy trends.
The BOE has previously warned that a decision to leave the EU may trigger a strong negative response from financial markets as investors flee the uncertainty of the unprecedented outcome. Ramping up ominous rhetoric this time around may be seen as likely to influence voters to opt in favor of staying within the regional bloc, which may (somewhat counter-intuitively) boost market-wide sentiment.
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