US inflation data slows in March

US inflation rates slowdown in march

The latest data released on Wednesday showed that US inflation rates recorded a significant slowdown in March. Consumer prices rose by 5% on an annual basis, which is lower than the previous increase of 6%. On a monthly basis, inflation rose by only 0.1%, compared to the previous increase of 0.4%.

Federal Reserve Chairman Jerome Powell recently emphasized that economic data will play a crucial role in the US interest rate trajectory and monetary tightening pace. The continued slowdown in inflation growth confirms the Federal Reserve's success in controlling one of the most important obstacles it faced in 2022. As a result, the markets are preparing for the Fed to begin reducing the pace of interest rate hikes in the second half of 2023.

According to the CME tool, there is a 67% chance of interest rate stabilization in the June meeting. However, most expectations still support a 25-basis point rate hike in the May meeting.

Gold surges after US inflation data and geopolitical tensions drive demand

Gold prices surged after the release of US inflation data and geopolitical tensions drove demand for the precious metal. The US dollar fell sharply as inflation growth slowed and markets anticipated a reduction in the pace of monetary tightening by the Federal Reserve. The dollar index fell from 102.10 to 101.60, contributing to gold's strong increase, which rose to levels of $2,028 per ounce.

Gold's rise was further fueled by the ongoing slowdown in US inflation growth and the expectation that central banks would ease monetary tightening, leading to a higher demand for non-yielding assets such as gold.

The escalation of tensions between China and Taiwan, following the visit of the President of Taiwan to the United States, also contributed to the rise of gold. China regards Taiwan as an integral part of its territory, and the latter controls over 60% of the global electronics chip industry. Any further geopolitical tensions could have serious implications for the global economy.

The current situation poses two scenarios, either a repeat of the same scenario as the war in Ukraine, which could lead to the destruction of the electronics chip industry, break supply chains, and raise inflation to unprecedented levels worldwide. Or Taiwan falls under China's control, raising fears of a new world war.

The gold prices surged after the release of US inflation data and the escalation of geopolitical tensions, including concerns over China and Taiwan, drove demand for the precious metal.