Traders have cut the odds of a Federal Reserve rate increase next week to less than one in five after Chair Kevin Warsh’s remarks in Bangkok were interpreted as supporting the case to keep rates on hold at the October 27 to 28 meeting, Bloomberg reported on Monday. One account of the same pricing put the probability below one in six.
The move reverses the build-up that followed last week’s hot United States inflation print, which had lifted hike expectations and boosted the dollar. Warsh’s comments halted the dollar’s gains, and the Bloomberg Dollar Spot Index was little changed on Monday after falling 0.3 percent last week.
Bullion was the cleanest expression of the repricing. Spot gold rose 0.5 percent to 4,184.55 dollars an ounce by early afternoon in Singapore, silver gained 1.5 percent to 57.82 dollars, and gold-backed exchange traded fund holdings have now risen for 13 consecutive weeks, Bloomberg reported. Higher borrowing costs are a headwind for gold, which pays no interest, so a lower October hike probability mechanically supports the metal. Indian futures told the same story independently: December gold on the MCX rose 461 rupees to 148,379 rupees per 10 grams and December silver rose 826 rupees to 212,013 rupees per kilogram in early trade, IANS reported.
The repricing does not close the tightening question. Traders still see a high likelihood of another increase before the end of the year, and the producer price data behind last week’s inflation scare, the sharpest monthly rise in four and a half years on the account cited by Indian market reporting, keep December in play. What changed on Monday is the sequencing: October is now priced as a hold, and the argument moves to whether the December meeting carries the hike that October no longer does.