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Sentiment improved as Fed indicated low threat of inflation - ZFX Daily

Sentiment improved as Fed indicated low threat of inflation

25-02-2021 04:12

On Thursday, stocks in Asian markets generally rose in morning trading session while the Dow made another new record closing high overnight. The Dow jumped 424.51 points to a record closing high of 31961.86. The Dow futures has touched 32000 level above in earlier trade.

Traders restored confidence as Fed Chairman Jerome Powell continued to lower the inflation expectations in the market, mentioning that it could take “three years” to reach the inflation target of Fed. He does not expect higher inflation would be consistent and he pointed out the central bank has tools to handle with such situation.

Despite downplaying the inflation risk by Fed, global investors are still closely watching the moves of the benchmark 10-year Treasury yield, that has jumped to 1.4% level, hovered near a one-year peak. That means, on the other hand, markets are still “bullish” on the outlook of inflation, no matter it is short-term or long-term.

The dollar index dropped back to around 90 level as the Fed released its dovish signal. The greenback made a new low against those riskier currencies, like the Aussie, Sterling, Loonie and Kiwi. As Powell reiterated on Wednesday that the Fed would not adjust the easing policy until the US economy has clearly improved, the greenback turned weaker. While the safe-haven dollar slipped, sensitive sentiment changed to “risk-on” again.

However, gold price still edged lower amid weaker dollar. Investors generally consider higher bond yields will hurt the metal’s appeal, based on the opportunity cost of holding non-yielding assets.

In fact, easing financial environment should benefit gold price. ZFX analyst Jacob Leung said that, now it is a “dilemma” to hold gold when the US Treasury yields are rising. It should be noticed that short-term inflation may not be a persistent support to gold market. And, the hot wave of Bitcoin also hurt gold’s appeal.


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