Gold up as Fed minutes cool rate hike prospects, weigh on dollar

Gold headed lower on Wednesday as the US dollar bounced back ahead of the release of the Fed’s July meeting minutes.

A strong potential catalyst for a decisive USD/JPY breakdown below 100.00 should occur if the prospects of a near-term Fed rate hike and further BoJ easing actions BOTH continue to be increasingly doubted by the markets.

“It is a game of wait and see as far as the dollar is concerned, and by extension buck-denominated gold, with traders largely sitting on their hands ahead of the release of the FOMC minutes later on”, said forex.com analyst Fawad Razqzada. In recent days, several FOMC policymakers, William Dudley of New York Fed Reserve and Dennis Lockhart of Atlanta Fed have stressed that September remains quite live in terms of a rate hike.

“Some investors got the feeling maybe, maybe wrongly, that the minutes were going to confirm the view of Dudley and Lockhart yesterday that September is possible for a rate hike”, said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in NY.

The dollar fell 0.4 percent against a basket of six major currencies, after plunging to its lowest in more than seven weeks.

– The dollar index extended lower in the early hours to reach 94.38 and it was last at 94.45. Stocks were little changed on the release of those minutes, and with good reason: The markets already believed that a rate hike in September would be highly unlikely.

“I still think the Fed will stay on hold, but the pendulum of market thinking, and risk sentiment, is going to swing toward “higher rates sooner” which should support the U.S. dollar and potentially curtail recent stock market gains”, Dolan concluded.

Treasury prices ended the day near their lows, with the 10-year yield settling higher by 2 bps at 1.57% while the 2-year yield also edged up 2 bps at 0.75%.

The dollar was last down 0.07 percent against the yen at 100.21 yen after hitting 100.06 yen shortly after the minutes.