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The Federal Reserve has left interest rates unchanged and removed language about further hikes.  Officials signaled rate cuts are not imminent, a hawkish twist. Investors are set to focus on data showing a slowdown, reversing the initial response. Markets do not like uncertainty – or the lack of confidence, which the Federal Reserve (Fed) has expressed. A deeper look at the bank’s pushback reveals its weakness and could trigger a reversal. The Fed removed the part indicating further rate hikes may be needed, but that was obvious for months. Its last tightening came in July, and the December decision already included a major downgrade in expectations for further hikes. The “dot plot” indicated more cuts than they had previously forecast.  Yet removing the open door to hiking was balanced by a pushback against immediate hikes. Here is the critical passage: The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent The understatement is that officials cannot be confident that inflation is falling. Is this the case? According to the Fed’s preferred inflation calculation, PCE, headline price rises slowed to 2.6%, while Core PCE… Read More »Fed Quick Analysis: Powell only slaps investors on the wrist, risk-on reversal on the cards

XAU/USD Current price: 2,050.48 The US Dollar came under strong selling pressure following signs of easing price pressures. The United States Federal Reserve will soon announce its decision on monetary policy. XAU/USD trades near a fresh two-week high, aims to extend gains in the near term. The US Dollar is under strong selling pressure as the Federal Reserve’s (Fed) monetary policy decision approaches, with XAU/USD advancing beyond $2,050 a troy ounce. The Greenback slid after the release of United States (US) employment-related figures, signaling inflationary pressures eased further. On the one hand, the ADP National Employment Report showed that the private sector added 107K new positions in January, below the market expectations. ADP Chief Economist Nela Richardson noted: “Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay,” adding that “the economy looks like it’s headed toward a soft landing in the US and globally.” At the same time, the country released the Q4 Employment Cost Index, which showed wages and benefits increased 0.9% in the three months to December, down from 1.1% in the previous quarter and the smallest advance in over two years. Government bond yields plunged with the news, with the 10-year… Read More »Gold Price Forecast: XAU/USD jumps ahead of Fed’s announcement

EUR/USD Current price: 1.0846 Germany reported the Harmonized Index of Consumer Prices eased by more than anticipated in January. The United States ADP survey showed the private sector added 107K new jobs in January, worse than expected. EUR/USD is technically bearish and could accelerate south on a break through 1.0800. Financial markets are on pause this Wednesday, with EUR/USD changing hands around the 1.0840 level and confined to a tight intraday range, ahead of the United States (US) Federal Reserve’s (Fed) monetary policy announcement. The Federal Open Market Committee (FOMC) surprised investors in December by anticipating three rate cuts for 2024. At the same time, however, policymakers were reluctant to provide clearer clues on the extent and timing of such rate cuts. Financial markets are pretty convinced the Fed will pull the trigger next March, delivering a 25 basis points (bps) rate cut, despite officials arduously trying to cool down such hopes. The FOMC is widely anticipated to maintain its monetary policy unchanged, with the focus on Chair Jerome Powell’s words. In the press conference, Powell will likely avoid giving markets what they want, that is, a certain date for the first rate cut. Meanwhile, data coming from the Eurozone… Read More »EUR/USD Forecast: Looming US Federal Reserve’s announcement keeps investors on their toes

EUR/USD holds above 1.0800 in the European morning on Wednesday. The Federal Reserve is expected to leave its policy settings unchanged. Market positioning suggests that there is room for further USD strength in case of a hawkish Fed surprise. After fluctuating in a tight channel above 1.0800 on Tuesday, EUR/USD closed the day marginally higher. With the US Dollar (USD) staying resilient against its rivals early Wednesday, however, the pair is finding it difficult to extend its recovery.  Slightly better-than-expected growth figures from the Eurozone area helped the Euro find a foothold on Tuesday. Additionally, European Central Bank (ECB) President Christine Lagarde reiterated that they would need to be further into the disinflationary process before cutting the rates, supporting the currency.

Markets Wednesday presents a busy, potentially massively volatile, and market-moving session with the FOMC meeting and the U.S. refunding on tap.  With the Treasury Department’s consistent efforts to push down yields evident in its quarterly refunding announcements, investors will focus on whether the Treasury refunding estimates will be adjusted lower based on the recent forthcoming supply alterations published on Monday.  As for the FOMC meeting, while the Fed is not anticipated to endorse a rate cut in March, the primary question surrounds whether such early rate cut discussions are being entertained, which should be the primary market-moving focal point during the press conference. Indeed, it’s poised to be a blockbuster day as Chair Powell has the potential to endorse or push back current market bullish dynamics and ebullient investor sentiment. Are you kidding me? With so many potentially market-moving events, it will be a hair-raising Wicked Wednesday, so buckle in.  Regarding market performance, stock indexes experienced a mixed day, with the Nasdaq Composite declining by 0.8%, partially offsetting the previous day’s substantial gains. The S&P 500 concluded the day with a modest decline of 0.1%. However, the Dow Jones Industrial Average registered an uptick of 0.4%, equivalent to 134 points.… Read More »It could be a hair-raising wicked Wednesday, so buckle in

Gold price extends retreat from 10-day highs of $2,049 on the Fed day. Risk aversion props up the US Dollar even as Treasury bond yields tumble.   Fed Chair Powell’s words hold the key for Gold price mixed technical indicators.   Gold price is extending its pullback from a ten-day high of $2,049 reached in the early American trading on Tuesday, as the US Dollar (USD) is attracting fresh demand amid broad risk-aversion on the all-important US Federal Reserve (Fed) interest rate decision day. All eyes remain on Fed Chair Jerome Powell’s presser Markets are sensing caution, as China’s economic concerns and escalating Middle East geopolitical tensions persist amid typical risk-averse trading heading into the Fed policy announcements. The tepid risk sentiment has revived the demand for the US Dollar as a safe-haven asset, fuelling a further retreat in Gold price. The official manufacturing data from China showed contraction for the straight month in January, as the market angst continues over the lack of large stimulus moves by authorities to shore up the economy. The downside in the Gold price, however, appears cushioned, thanks to the ongoing sell-off in the US Treasury bond yields, as investors remain wary ahead of… Read More »Gold Price Forecast: XAU/USD looks to Powell speech for a clear directional impetus

The narrative of the last mile of disinflation being the hardest, which in 2023 became popular in the world of central banking, reflects concern that after having dropped significantly, further declines in inflation would be more difficult.However, it seems that relevance of this narrative is increasingly being questioned. The account of the December 2023 meeting of the ECB governing council mentions that it has been debated. It seemed that the disinflation of 2023 had been faster than in previous episodes, raising doubts about the relevance of the narrative. A paper of the Federal Reserve Bank of Atlanta analyses this topic for the US. Based on recent research on the Phillips curve, it concludes that the ‘last mile’ is likely not significantly more arduous than the rest. Before the terminal rate was reached, referring to the ‘last mile’ was a form of implicit policy guidance: it might be necessary to have more elevated rates or to keep rates high for longer. At the current juncture, the policy debate is all about when to start cutting rates and the ‘last mile’ narrative is quickly losing its relevance. In 2023, the narrative of the last mile of disinflation being the hardest became popular… Read More »The ‘last mile of disinflation’: A narrative running on its last legs

AUD/USD keeps hovering in the sub-0.6600 zone. Retail Sales in Australia disappointed expectations. Investors’ attention now shifts to inflation figures. Once again, AUD/USD exhibited an erratic performance on Tuesday, remaining ensnared in a rangebound pattern that has persisted since the middle of this month. That said, spot faded the promising start to the week, with the Australian dollar weakening on a daily basis in tandem with the decent gains in the greenback. In the meantime, the resilience of the Australian currency is notable, particularly in light of recent reports suggesting additional stimulus measures by the PBoC to support China’s stock market and promote economic recovery in the post-pandemic era. However, these efforts, aimed at boosting the economy, have been slower to materialize than expected. On another front, the expected decision of the Reserve Bank of Australia (RBA) to maintain its current policy stance at its February 6 meeting is viewed as a factor limiting the potential upward movement of the pair in the near term, which should morph into extra-subdued trading in the short-term future. Back to the RBA, the recorded decrease in inflation metrics in December, alongside the perceived tightness in the labour market, has strengthened the consensus among… Read More »AUD/USD Forecast: No changes to the consolidative theme

XAU/USD Current price: 2,032.51 United States data fueled demand for the US Dollar ahead of the Federal Reserve’s announcement. The US Treasury reduced its federal borrowing estimate for 1Q 2024  to $760 billion. XAU/USD keeps grinding higher, with buyers slowly recovering their confidence. The US Dollar is once again appreciating during the American session, resulting in XAU/USD retreating from a fresh weekly high of $2,048.64 achieved following the release of United States (US) data. The country reported that the number of job openings on the last business day of December stood at 9.02 million, according to the US Bureau of Labor Statistics (BLS)  Job Openings and Labor Turnover Survey (JOLTS), higher than the  8.92 million openings reported in November. Additionally, CB announced Consumer Sentiment rose to 114.8 in January, its highest in over two years. The USD is firmer despite a sharp slide in government bond yields. Markets welcomed news from the US Treasury, as the organism reduced its federal borrowing estimate for 1Q 2024  to $760 billion, down from a previous $816 billion estimate. However, Wall Street trimmed previous gains, with major indexes trading mixed around their opening levels. Finally, caution prevails as speculative interest awaits the US Federal… Read More »Gold Price Forecast: XAU/USD advances for a second consecutive day

EUR/USD Current price: 1.0843 European data was mixed, as the German economy contracted in Q4. Attention shifts to United States employment-related figures ahead of Fed, NFP. EUR/USD recovered some ground, but bears hold the grip. The EUR/USD pair hovers around 1.0840, recovering some of the ground lost on Monday amid a better market mood weighing on the US Dollar. Wall Street closed the day in the green after its overseas counterparts hesitated for direction, with US indexes benefiting from earnings reports and a positive surprise from the United States (US) Treasury, which cut its quarterly borrowing estimate. As a result, government bond yields fell sharply, putting additional pressure on the USD demand. European data was mixed, as Germany confirmed the economy contracted in Q4. The Gross Domestic Product (GDP) declined 0.3% in the three months to December, while the annualized reading came in at -0.2%, as expected. However, the Eurozone GDP in the same period was up 0.1% from a year earlier, better than the 0% expected. Additionally, the January Economic Sentiment Indicator posted 96.2 as expected, while Consumer Confidence in the same month contracted to -16.1. Market players will now turn their eyes to US data, as the country will… Read More »EUR/USD Forecast: Optimism limits US Dollar demand