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Gold rises on European poll worries; investors wait for Fed outcome

17 March 2017

The euro has lost about 4% of its value against the dollar since October, when markets started betting on tighter monetary policy in the U.S. This is a sign that the Fed's decisions are likely to keep driving the single currency, because policy makers at the European Central Bank are unlikely to follow suit in the near term.

By contrast, the euro was mostly unruffled by the result of the Dutch election Thursday morning, even after preliminary results backed up the earlier exit polls, showing that Prime Minister Mark Rutte had held off the challenge of far-right rival Geert Wilders.

Prices on benchmark 10-year Treasuries rose 27/32 to yield 2.498 percent, from 2.595 percent late on Tuesday.

U.S. Treasury yields fell sharply in reaction to the Fed's rate view for the rest of the year, prompting the dollar to fall more than 1 percent against the yen.

Attention is turning to whether the USA central bank will signal an even faster pace of monetary tightening this year than the current three rate hikes that it projected at the December policy meeting.

Later Thursday, President Donald Trump will make his formal 2018 budget request to Congress, although aspects of the budget proposal are already circulating. He's said he'll seek a $54 billion boost in defense spending, paid for by an equal amount of cuts to non-defense agencies.

U.S. Secretary of State Rex Tillerson travels to Japan, South Korea and China in his first visit to the region since taking office.

Between February 16, 2017, and March 8, 2017, the US Dollar Index rose almost 1.6%. The index closed 0.3 percent higher Monday.

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U.S. West Texas Intermediate crude was up 63 cents, or 1.32 percent, at $48.35. Singapore index futures climbed 0.9 percent while and those on India's Nifty 50 added 0.7 percent.

Gold is highly sensitive to rising USA interest rates as these increase the opportunity cost of holding non-yielding bullion while boosting the dollar in which it is priced.

The dollar fell 1.2 percent against a basket of key currencies and hit a five-week low against the euro. It touched a high of $1.0740 Wednesday. The shared currency on Thursday bought $1.0736, little-changed from late Wednesday in NY.

The New Zealand dollar slipped 0.5 percent to 70.13 cents after data showed the economy grew at the slowest pace since mid-2015 as farm production and food manufacturing contracted.

The U.S. Federal Reserve was due to release it policy statement at 2 pm ET, with the central bank widely expected to raise interest rates for the second time in three months.

The yield on 10-year Treasury notes fell 11 basis points to 2.49 percent. US light crude settled 11 cents lower at $48.75 a barrel.

Spot gold is still targeting $1,193 an ounce, as suggested by its wave pattern and a Fibonacci ratio analysis, according to Reuters technical analyst Wang Tao.

Gold rises on European poll worries; investors wait for Fed outcome