What might happen to world markets after the US Federal Reserve’s decision to reduce interest rates for the second time in 2024? How will this decision affect the dollar? Will it have an impact on gold and oil prices? What might change in the global economy because of this step? Let us know some details and talk about the effects of this decision on different markets
First, we must know that the decision to reduce interest rates by the US Federal Reserve affects not only the American economy, but also the economies of many countries around the world.
Simply put, when the Fed lowers interest rates, this is a signal to me that there is a tendency to stimulate the economy, and this will be either to increase investment or to confront the risks of an economic recession that may be coming.
What effect does this have on the dollar and gold?
We start with the dollar. When the Fed reduces interest rates, the return on bonds and investments in dollars decreases. Investors often look for other currencies or different assets that provide a higher return. This could lead to a decrease in the value of the dollar against other currencies, especially in emerging markets. At the same time, the decline of the dollar affects the prices of basic commodities because many of them, such as gold and oil, are priced in dollars. Therefore, the weakness of the dollar supports the prices of these goods because they are cheaper for buyers in other currencies.
We come to gold, which is always a safe haven for investors in times of instability, when the Federal Reserve lowers the interest rate. This encourages people to buy gold because it is an investment that maintains its value away from the fluctuations of the dollar. I mean, we could see gold prices increasing over time, especially if the global trend favors lowering interest rates and increasing inflation. Usually, when the interest rate decreases, investors look for investments that maintain their value, and here comes the role of gold as a safe asset.
As for oil, things are a little more complicated. It is true that the weakness of the dollar may encourage some countries to import more oil, but oil prices also depend on many other factors, such as supply and demand and global policies, especially tensions in oil-producing regions… and with expectations of a decline in demand for oil in In some countries, especially if the global economy enters a state of recession, this may put pressure on prices and affect the expected gains from the decline of the dollar
In summary: The decision taken by the Federal Reserve to reduce interest rates twice this year may have major consequences on the global economy and its effects will not only be in America, but will also affect global markets and prices. With time, we may see clear movement in emerging markets, and gold may prefer stability as a safe haven, while oil will be waiting for clear signals from the global market to determine its trends.
For this reason, we must follow up and know how things will develop after this decision, and will the American economy really be able to avoid recession, and what might happen to the dollar, gold, and oil in the coming period?
