Gold, U.S. Dollar: Where to After CPI?

investing.com:

After a brush with $2,000 at the start of August, gold futures are back at their tiring mid-to-lower $1,900 range. Spot gold, more closely followed than futures by some traders, is emerging from a one-month low beneath $1,922.

On the contrary, the Dollar Index has gone gung-ho before the release of last month’s inflation numbers, hitting five-week highs at 102.655.

What will become of the yellow metal and the U.S. currency if the July reading for the Consumer Price Index comes in as forecast or proves a little higher or lower?

The United States is to release its latest reading for the CPI on Thursday, which will show how much further the Federal Reserve has to go with rate hikes.

A day before the CPI release, the U.S. will issue its July Producer Price Index data, with core producer prices expected to rise by 2.3% from a year earlier.

The CPI, which rose by 3.0% year-on-year in June for its smallest growth in two years, is expected to have seen a slightly more aggressive expansion of 3.3% in July. The Fed’s target remains just 2% per annum.

The Fed has identified runaway jobs growth and correspondingly higher wages — as well as trillions of dollars of relief spending over the 2020 coronavirus outbreak — as among the reasons for inflation hitting 40-year highs of more than 9% a year in June 2022.

While pandemic spending is over, jobs and wage growth have continued to fuel inflation, prompting the Fed to keep adding to interest rates.

Since March 2022, the central bank has hiked rates by 525 basis points from the previous 25. Its next rate decision is on September 20. 

A lower CPI reading would make Fed policymakers more likely to hold off raising interest rates at their September meeting after a quarter-percentage-point