Gold Price (XAUUSD) is demonstrating a mediocre performance in the Asian session following Thursday’s stronger bounce below the psychological support of $1,700. After a responsive buying activity, the precious metal is fluctuating within a minute range. Typically, a responsive purchasing action indicates that market players view the asset as a value bet and have placed substantial wagers. Nonetheless, it does not justify a bullish turnaround.
After reaching a record 19-year high of 109.30 on Thursday, the US dollar index (DXY) is undergoing a short-term drop. The asset is continually re-testing its previous highs, demonstrating the bullish vigor of the DXY. The DXY is nearing the important support level of 108.60 and may restart its ascent after recovering the round-number resistance level of 109.00.
The prevailing notion in the investment industry is that the Federal Reserve (Fed) would raise interest rates by 1 percent, which might harm the growth prospects of the US economy. As a rate rise of 100 basis points (bps) is not a typical occurrence, it is anticipated that the Fed would take the unprecedented action. There is no doubting that a 100 basis point increase in interest rates will severely reduce the economy’s liquidity. In addition, the business sector will be left with expensive capital for their investment chances. Without a doubt, the expensive liquidity will compel corporations to apply additional filters when evaluating investment prospects.
It is illogical to argue that the thriving labor market has enabled the Federal Reserve to sound exceedingly hawkish and unwaveringly so. The US economy has provided several employment possibilities. In addition, the unemployment rate has been declining over a longer period of time. The accomplishment of full employment has been a significant factor in bolstering the Fed’s hawkish stance. If the Fed raises interest rates by 100 basis points during its monetary policy meeting in July, the burden will be transferred to the labor market, which might run out of steam if pricing pressures continue.