ECB lifted rates by 75bps
The European Central Bank has raised its deposit rate by 75bps to 0.75% last Thursday. The bank is also expected to further increase rates as inflation is still too high but noted that rate decisions in the future will be based on data and meeting-by-meeting approach.
ECB is also expected to increase rates by 50bps in October and December to 1.75%. The final 25bps is anticipated to happen in early 2023 making the deposit rate to 2.00%. The bank has also increased their inflation forecast and it is now expecting that this years’ rates will be 8.1% on average, the 5.5% in 2023, and 2.3% in 2024.
Eyes on US CPI
On Tuesday, US Consumer Price Index (CPI) will be released by the US Bureau of Labor Statistics. CPI m/m basis is expected to fall by -0.1%. Core CPI, not including food and energy is projected to remain unchanged at 0.3%.
A soft inflation data could raise the likelihood of a 50bps rate increase, which the FOMC policymakers held off on confirming in September. In that case, it is expected that treasury yields will drop significantly that could lead to a strong surge in gold. On the other hand, CPI readings that are greater than expected might solidify a 75bps rate increase and prevent a move north for XAU/USD. It is important to keep in mind that markets are already pointing towards an excessive increase which implies that the dollar’s future gains could be limited.
UoM Consumer Sentiment
On Friday, the University of Michigan will release its September Consumer Sentiment Index survey. Instead of the headline Confidence Index, market players are expected to pay special attention to the survey’s component on long-term inflation forecasts. Consumer inflation expectations over the next five to ten years should drop, but an unexpected rise could strengthen the dollar and put a pressure on gold.