Today, some countries celebrate Good Friday. Several banks and stock exchanges are closed. All important macroeconomic statistics, which are usually published on Friday, were published on Thursday. In particular, the preliminary US consumer sentiment index released yesterday was 65.7 in April, which is higher than 59.4 in March and a forecast of 59.0. Expectations for the economy and personal finances have improved.
Although the indicator is still at its lowest level since November 2011, as the spread of the Omicron strain earlier in the year and high inflation caused a sharp deterioration in sentiment from January through March, the April data logged the first improvement in consumer sentiment since December.
The yearly consumer sentiment indicator jumped by 29.4% and the indicator of expectations for personal finances increased by 17.2%, said the University of Michigan, which published the data. A strong labor market boosted earnings expectations among consumers under 45 to 5.3%. That's the largest increase in the indicator in more than 30 years. "Consumers continue to expect the national unemployment rate to decline little by little, which improves their assessment of the national economic outlook," the University of Michigan economists said, even though "there remain too many sources of significant economic uncertainty."
As Federal Reserve Bank of New York President and FOMC Vice Chairman John Williams said last night, raising interest rates by half a percentage point at the Committee meeting seems "a very reasonable option."
The need for one or more interest rate hikes of 50 points has been stated recently by other Fed policymakers as well. According to the latest data from the Labor Department, annual US inflation hit a 40-year high of 8.5% in March, and to combat the accelerating inflation "the Fed may have to raise rates above neutral," according to Williams. The neutral interest rate, which neither stimulates nor hinders economic growth, is, according to Williams, in the range of 2% to 2.5%. Right now the range of this rate is 0.25% to 0.5%.
Other important data on the US economy was also released on Thursday. In particular, the US Labor Department reported that initial jobless claims for the week of April 3-9 rose to 185,000 from 167,000 a week earlier. This was the lowest level since 1968. Secondary claims also remain near their lowest readings in more than 50 years. This data suggests a steady improvement in the US labor market. Combined with GDP and inflation data, it is a determining factor for the Fed in its monetary policy decisions.
Yesterday, John Williams assured the US economy could withstand higher interest rates while continuing to grow.
During yesterday's very volatile trading, the US dollar strengthened again and the US dollar index rose to a new almost 2-year high of 100.77. There is a little gap to 101.00. And most likely, the 101.00 level will soon be broken through, which will set the stage for further growth in the DXY and, consequently, the strengthening of the US dollar.
Despite the positive outlook for the US dollar, gold is also rising in value, and the XAU/USD pair maintains bullish momentum. Market participants remain cautious amid geopolitical risks, as well as assessing how successfully the Fed and other major central banks will cope with the growing inflation. But the Fed has all eyes on it. If inflation in the US continues to rise, and the geopolitical situation remains tense, then, despite the increase in interest rates of the Fed (and gold quotes are extremely sensitive to changes in the policies of the world's major central banks, especially the Fed's), the price of gold will again head towards the recent swing high and the psychological level of $2,000.00 per ounce. After overcoming this resistance, the prospect of growth of gold quotations and the XAU/USD pair will extend up to the swing high of $2,075.00 last seen in August 2020 and $2,100.00, which is the upper limit of the ascending channel on the weekly chart.