Dollar and gold futures drop as investors wait for two economic reports

Both the dollar and gold dropped today as investors and traders wait for two important economic reports later this week. Tomorrow’s first reading of U.S. GDP for the final quarter (Q4) of last year, and Friday's PCE report for December. 

On Thursday, the Commerce Department will release its initial GDP estimate. Economists that were surveyed by the Dow Jones are forecasting that the total of all goods and services produced by the United States will have grown at a pace of 1.7% for the final quarter of 2023. 

On Friday, the Bureau of Economic Analysis will release its latest information on inflation, releasing the PCE (Personal Consumption Expenditures Price Index) for December. Expectations for the core PCE is that prices will increase by 0.2% for the month and 3% year-over-year. If forecasts are correct the PCE would move from 3.2% year-over-year in November down to 3% year-over-year in December. A strong indication that inflation continues to abate moving closer to the Federal Reserve’s 2% target.

Both the dollar and gold ticked lower, but have recovered from their daily lows, today’s report revealed that business picked up in January and inflation appeared to have cooled as a result of prices charged by companies for their products falling to the lowest level in more than 3 ½ years.

The dollar index traded to a low today of 102.78 and as of 5:40 PM ET is currently down 0.29% and fixed at 103.276. Gold futures basis the most active February contract traded to a low today of $2011.70 and are currently down $9.80 (-0.48%) and fixed at $2016.

Although both gold and the dollar are currently trading lower, if tomorrow’s fourth quarter GDP and Friday’s PCE report for December come in line with estimates it will suggest to the Federal Reserve that their restrictive monetary policy has put inflation on their anticipated direction closer to their target of 2%.

According to the CME’s FedWatch tool, there’s only a 1.6% probability of a rate cut this month and a 41.3% probability of ¼% rate cut in March. The CME’s FedWatch tool suggests an exceedingly strong probability that the Fed will initiate rate cuts on or at the May FOMC meeting. The probability forecast tool assesses a 10.7% probability that the Fed take its benchmark interest rate to between 4 ¾% and 5%, a 55% probability that rates will be between 4 ½% and 4 ¾, and a 33.8% probability that rates by the conclusion of the May FOMC meeting will be between 4 ¼% and 4 ½%.

Wishing you as always good trading,