- US Treasury Yields Rise as Global Inflation Data Raises Fears; the 10-year bond yield rises to 4,320%.
- Inflation data from Canada and Australia are higher than expected, contributing to the global rise in yields.
- The focus shifts to the US May PCE report, with expectations of a slight decline in both headline and core inflation.
US Treasury yields rose on Wednesday after some countries released inflation data, which was higher than expected and raised fears that the upcoming May Personal Consumption Expenditure (PCE) Price Index report in the United States United could be high.
Elevated US yields weighed on Gold, pushing prices to a two-week low
On Tuesday, data from Canada showed inflation was higher than expected, causing global bond yields to rise. On Wednesday, Australia’s Consumer Price Index (CPI) rose to its highest level in six months, reaching 4%, well above the Reserve Bank of Australia’s (RBA) inflation target.
This week’s focus will be on the Fed’s preferred gauge for inflation, the May PCE, which is expected to decline from 2.7% to 2.6% year-over-year, while core PCE is anticipated to be 2.6% trailing twelve months. until May, compared to the previous 2.8%.
Other significant data releases include the final gross domestic product (GDP) reading for the first quarter of 2024, durable goods orders, and initial jobless claims.
The 10-year US Treasury yield has risen seven basis points to 4.320%, its highest level since mid-June. This pushed Gold prices towards a two-week low of $2,293 before stabilizing around $2,297.
Data from the Chicago Board of Trade (CBOT) shows that traders expect easing of 36 basis points (bps), based on the December 2024 federal funds rate futures contract. Meanwhile, the FedWatch tool of the CME shows odds of a 25 basis point Fed rate cut in September at 56.3%, down from 59.5% on Tuesday.
Interest rates FAQs
Financial institutions charge interest rates on loans to borrowers and pay them out as interest to savers and depositors. These are influenced by base interest rates, which are set by central banks based on economic developments. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below the target, the central bank can cut base interest rates, in order to stimulate credit and boost the economy. If inflation rises substantially above 2%, the central bank typically raises core lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and, since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set in a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations about the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which determines the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
