Spot gold fluctuates within a narrow range and is currently trading around $2032.92 per ounce. Overnight, the U.S. inflation data was weaker than market expectations, and the market’s expectations for the Fed’s interest rate hike in June cooled. The U.S. dollar index weakened, and the price of gold once soared to around the 2050 mark. Because the market realizes that US inflation is still at a relatively high level, it is unlikely to cut interest rates in the short term.
Concrete talks on raising the $31.4 trillion U.S. debt ceiling kicked off on Wednesday as Republicans continued to insist on spending cuts. Time is running out to avoid a historic, economically destabilizing government debt default.
U.S. one-year credit default swap (CDS) spreads - a market measure of default risk - widened to 172 basis points on Wednesday, a record high.
Year-on-year growth in U.S. consumer prices slowed below 5 percent in April for the first time in two years, and a key measure of inflation monitored by the Federal Reserve also fell, potentially giving the central bank room to pause further rate hikes in June.
Inflation remains too strong, however, with a report from the Labor Department on Wednesday showing strong month-over-month increases in consumer prices due to sticky rents and a rebound in gasoline and used motor vehicle prices. The mixed report dampened financial market hopes that the Federal Reserve would begin cutting interest rates this year to shore up the economy.
"Today's consumer inflation report supports the case for the Fed to seriously consider pausing rate hikes in June, but does not support any near-term rate cut expectations," said Scott Anderson, chief economist at Bank of the West in New York.
The consumer price index (CPI) rose 0.4% in April after rising 0.1% in March, in line with economists' expectations. The climb in inflation is due in large part to stubbornly high rents. However, for consumers, there is also a place to breathe a sigh of relief.
Food prices were unchanged for the second month in a row. Prices at grocery stores fell 0.2 percent in April after falling 0.3 percent in March, the first two-month decline since July 2019. Fruit and vegetables, meat, fish and eggs are all cheaper compared to March.
Natural gas prices tumbled 4.9 percent and electricity prices fell for a second straight month, undercutting a 3.0 percent jump in gasoline prices, which had fallen 4.6 percent in March.
In the 12 months through April, the CPI rose 4.9%, the smallest year-on-year increase since April 2021, after rising 5.0% in March.
Year-on-year CPI growth peaked at 9.1% in June last year, the largest increase since November 1981, and is slowing as the initial surge in energy prices following Russia's invasion of Ukraine last year was no longer included in the calculation.
"Overall, inflation is still too high and won't fall back to 2% after climbing 0.4% month-on-month," said Chris Low, chief economist at FHN Financial in New York. "To get there, we need to see gains stabilize around 0.15%."