Gold slumps to lowest since mid-March on hawkish Fed

While the European Central Bank continues to pump tens of billions of euros into the euro zone economy each month, the Fed has raised interest rates twice in the past six months and is expected to hike them twice more by the end of the year.

In a move largely expected in financial markets, the policymaking Federal Open Market Committee unanimously agreed to keep its benchmark rate target at 0.75 percent to 1 percent. In a statement, policymakers led by chair Janet Yellen acknowledged that household spending growth had grown "only modestly" lately, but they emphasised that the "fundamentals" behind consumption growth remained solid.

Activity in the USA service sector grew at a faster than expected rate in the month of April, the Institute for Supply Management revealed in a report on Wednesday.

The FOMC raised the federal funds interest rate in March from 0.75 to 1 percent.

South Africa's rand weakened against the dollar in early trade on Thursday as the greenback rallied on the back of the hawkish U.S. Federal Reserve statement, pushing emerging market currencies lower.

Expectations that the Fed will signal a June rate increase later in the session lifted the dollar.

The minutes of the Fed's March meeting, which were released April 5, indicated that policymakers believed the time had almost come to begin shrinking the central bank's bloated balance sheet, which would act as a monetary tightening. On Friday, the government estimated that the economy, as gauged by the gross domestic product, grew at a tepid 0.7 percent annual rate in the January-March quarter.

Investors are awaiting Friday's monthly US non-farm payrolls report for greater signs of the Fed's likely rate hike trajectory through the end of the year.

The Fed reiterated its view that monetary policy remains accommodative to support both an uptick in labour market conditions and a sustained return to 2% inflation.

As such, economists now expect that the core inflation rate will continue to creep its way upwards over the next couple of months.

Traders reacted by increasing the probability of a rate rise next month.

Investors who bet on the future path of the fed funds rate project the next rate hike occurring in June, according to CME FedWatch. The minutes to this policy meeting, which are due to be released May 24, could provide more information on this.

"The statement makes it very clear that the Fed does not take the reported slowdown in first-quarter growth seriously", Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd, wrote in an email to clients. Indeed, last week's initial read on first-quarter GDP growth showed that to be one of the bright points, with nonresidential investment growing at a double-digit or better pace.

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