TREX Global:The dollar stabilized and rebounded, causing gold prices to pull back

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Recession prospect clouded as WEF annual meeting kicks off in Davos

The prospect of an impending global recession cast a long shadow over the World Economic Forum's annual meeting in Davos on Monday, as participants at the opening session of the annual meeting weighed the possible cost to their economies and businesses.

Two-thirds of chief private and public sector economists surveyed by the World Economic Forum expect a global recession this year, with about 18 percent saying it is "very likely" - a share of More than double the previous survey conducted in September 2022.

The WEF survey is based on 22 responses from a panel of senior economists from international institutions including the International Monetary Fund (IMF), investment banks, multinational corporations and reinsurance groups.

The World Bank last week slashed growth forecasts for many countries to the brink of recession in 2023, as the fallout from central bank rate hikes intensifies, the war between Russia and Ukraine continues and the world's main economic engine stalls.

Most economists see further tightening in Europe and the U.S. (59% to 55%, respectively), with policymakers risking tightening too much or too little.

Morgan Stanley cuts dollar index forecast for end-2023

Morgan Stanley lowered its forecast for the dollar index by the end of 2023 to 98 and expects the dollar to weaken more against the euro this year as concerns about the severity of the recession begin to ease. They previously expected the U.S. dollar index to be at 104 by the end of 2023.

“Global growth is showing signs of buoyancy, macro and inflation uncertainties are waning, and the dollar is rapidly losing its interest rate differential,” Morgan Stanley currency strategists led by James K Lord said in a report late Sunday. "

Dollar holds steady near seven-month lows

At the beginning of the Asian market on Tuesday (January 17), the U.S. dollar index fluctuated and rose slightly, and is currently trading around 102.48. The dollar got off to a bad start this week, hitting a seven-and-a-half-month low of 101.76 in Asian trading on Monday (January 17), and there are already some signs of stabilization and rebound, which is not good for gold prices in the short term.

With decades-high inflation in the world's largest economy showing signs of cooling, investors are now increasingly confident that the Fed's rate-hiking cycle is nearing an end and that rates won't rise as high as feared.

Aggressive interest rate hikes by the Federal Reserve were the main driver of an 8 percent surge in the U.S. dollar index last year, before signs that inflation was peaking, driving the U.S. dollar index back down.

However, Samy Chaar, chief economist at Lombard Odier, said: "It is too early to imagine a sharp decline in the dollar. We certainly see some dollar repricing, but for broad dollar weakness to occur, you need to really see the Fed's expectations." There's a material shift, there could be a rate cut at some point, and we're not seeing that right now."

Markets are currently pricing in a 91% chance of a 25 basis point hike at the Fed’s February meeting and a 9% chance of a 50 basis point hike.

TREX Global’s view:Due to the steady rebound of the US dollar and the profit-taking of some gold bulls, the price of gold has not effectively broken through the key position of 1920. However, in the mid-term, the gold price outlook is still clearly biased towards the bulls, and we need to pay attention to the support of bargain hunting.

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