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Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that. Expect policymakers to reiterate that rates need to stay restrictive for some time. But with services inflation coming down and wage growth set to follow suit, we think investors are right to be thinking about a summer rate cut. We expect 100bp of cuts next year. Markets are ramping up rate cut bets, and Governor Bailey isn’t happy about it Financial markets are rapidly throwing in the towel on the “higher for longer” narrative that central banks have been pushing hard upon for months. Even more remarkably, a small but growing number of policymakers from the Federal Reserve to the European Central Bank seem to be getting second thoughts too. So far, that market repricing has been less aggressive for the Bank of England. Investors are expecting three rate cuts next year compared to more than five over at the ECB. The first move is seen in June, as opposed to March over in Frankfurt. Despite that more modest adjustment, the Bank of England is starting to sound the alarm. Governor Andrew Bailey said in recent days that he is pushing back… Read More »Bank of England to push back against rising tide of rate cut expectations

A series of macro statistics continue to be published to help build a picture of the economy ahead of the Bank of England’s final decision on Thursday. The economy is reported to have lost 0.3% for October, pulling back in volume to July levels. This is a wake-up call from industrial production and construction, which are considered leading indicators of the business cycle. The index of industrial production fell immediately by 0.8% in October (-0.1% was expected), and the nominal index rolled back close to plateau levels from the final quarter of last year. Industrial production is only 0.6% above post-pandemic lows. If we exclude the lockdown period, UK industrial production last saw such a low back in 2017. High interest rates are putting pressure on the industry. The strengthening of the pound against the euro by 4% and the dollar by 12% over the year is also not helping the economy. The combination of deteriorating global demand and the appreciating pound is suppressing exports, which were 24% lower in October than a year earlier. Imports are also falling in the wake of commodity and energy prices and are now 18% below their peak in August last year, but the… Read More »The UK needs lower rates and a weaker currency

Gold price is sitting at the highest level in six days near $2,030 early Thursday. Fed affirms dovish policy pivot, smashes US Dollar alongside the US Treasury bond yields.   Gold price outlook appears constructive, as the 1D technical setup flips bullish. The final BoE and ECB policy announcements of 2023 could lift Gold price further. Gold price is consolidating its latest uptick to a six-day high near $1,940, as investors reassess the bets of the US Federal Reserve (Fed) interest rate cuts next year. Gold buyers also take a breather ahead of another round of central banks’ events, with the Bank of England (BoE) and the European Central Bank (ECB) set to announce their final policy decision of 2023.   Gold price cheers dovish Federal Reserve pivot Having treaded water in the first half of the day near three-week lows of $1,973 on Wednesday, Gold price witnessed a massive $50 turnaround in American trading. Gold price snapped its corrective mode from all-time highs of $2,144, breaking through several powerful barriers to challenge the $2,025 level. The upsurge in Gold price was primarily driven by a dovish shift in the Federal Reserve’s monetary policy outlook for 2024. The Fed held policy… Read More »Gold Price Forecast: XAU/USD needs to crack $2,040-$2,050 supply zone to extend recovery

Markets The Federal Reserve, as anticipated, maintained its current interest rates but indicated a dovish turning point that hints its subsequent action could involve a series of rate cuts in 2024. In the ” dove feast” column, the dot plot, reflecting policymakers’ projections, suggested 75 basis points in cuts throughout 2024, catching the markets completely flatfooted where most had interpolated 50 basis of cuts ( at most) and a hawkish pushback on easing financial conditions.  Federal Reserve policymakers opted to maintain their target rate range, a move widely anticipated. The surprising elements of the Federal Reserve’s recent actions were twofold. Firstly, they explicitly acknowledged the substantial decline in inflation in their official statement. Secondly, their updated projections indicated an expectation to implement a significant 0.75 percentage point rate cut in the upcoming year. This unexpected shift resonated harmoniously with investors as the “rallying cry ” was heard from every corner of Global Financial Markets. The Santa rally shifted into high gear in off-to-the-races fashion as Treasury yields bound towards 4 %, and equities surged as the S&P 500 and Nasdaq saw a robust 1.4% rally. Anticipations before the meeting leaned toward a more cautious approach by the Fed. However, recent… Read More »Asia open insights: Santa rally shifts into high gear in off-to-the-races

 AUD/USD Current Price: 0.6662 US Dollar tumbles after Fed meeting as Treasury bonds jump.  Australia’s employment report is due on Thursday. The AUD/USD breaks range, looks at monthly highs.  Following the December Federal Reserve (Fed) meeting, the AUD/USD pair jumped, surging above the 0.6600 level as the US Dollar tumbled. This upward movement suggests that the pair has the potential for further gains and could resume its uptrend after a two-week correction. As expected, the Fed decided to keep interest rates unchanged. In the staff projections, policymakers foresee three rate cuts for 2024. The dovish forecast has positively impacted Treasury bonds, while the US Dollar tumbled. With the confirmation that the Fed is done with hike rates, there is a room for further short-term weakness of the US Dollar. On Thursday, the Melbourne Institute will release the Consumer Inflation Expectations report. In November, the one-year expected inflation rate rose slightly to 4.9% from 4.8%. Additionally, the Australian Bureau of Statistics will release the Labour Force report, which is expected to show a positive change in employment of 11,000 in November. This represents a slowdown from the 55,000 jobs added in October.  Another significant release, early in the Asian session, will… Read More »AUD/USD Forecast: Aussie breaks range after Fed, eyes monthly highs

XAU/USD Current price: 1,981.7 Gold prices hover within familiar levels ahead of the US Federal Reserve’s decision. The United States central bank is widely anticipated to stay pat for a third consecutive meeting. XAU/USD at risk of extending its slump after posting a fresh weekly low. Gold prices see no action on Wednesday, with XAU/USD still stuck around $1,980.00. Financial markets are in wait-and-see mode ahead of the Federal Reserve (Fed) monetary policy announcement, the last one for 2023. Back in September, the Summary of Economic Projections (SEP) or dot plot, indicated that officials were still anticipating a terminal rate higher than the current 5.25%-5.50% interest rate. Still, policymakers refrained from hiking rates in the last two meetings, and the odds for a rate hike today are pretty much null. Speculative interest has long ago started priced in the end of monetary tightening, ignoring officials´ warnings against it. Furthermore, investors are pricing in multiple rate cuts for 2024, starting as soon as Q2. The SEP will then determine the direction of the US dollar, as the document may shed some light on what policymakers think could happen in the next couple of years. Additionally, Chair Jerome Powell will offer a… Read More »Gold Price Forecast: XAU/USD waiting for the FOMC for direction

EUR/USD Current price: 1.0786 Markets in wait-and-see mode ahead of the Federal Reserve monetary policy announcement. Eurozone Industrial Production contracted by more than anticipated in October. EUR/USD poised to extend its slump, strong static support level at 1.0732. The US Dollar trades with a firmer tone on Wednesday, and ahead of the Federal Reserve (Fed) monetary policy decision. The EUR/USD pair met sellers around the 1.0800 mark and trades a handful of pips below the level mid-European session. The Fed is widely anticipated to keep interest rates unchanged for a third consecutive meeting, somehow confirming the end of the monetary tightening cycle without explicitly stating so. At the same time, the central bank will release the Summary of Economic Projections (SEP), which may provide fresh clues on what policymakers expect for the next couple of years. The focus will be on the Fed funds rate, as it would indicate how willing policymakers are to pivot and proceed with rate cuts. Growth and inflation perspectives will also be relevant in terms of price action. Meanwhile, the Eurozone released October Industrial Production, which declined by 0.7% MoM and contracted by 6.6% from a year earlier. EUR/USD short-term technical outlook The EUR/USD pair… Read More »EUR/USD Forecast: Looming Fed’s decision limits price action

EUR/USD continues to fluctuate between key technical levels. The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5%. The revised Summary of Economic Projections and Powell’s comments could impact the USD’s valuation. EUR/USD climbed to a fresh weekly high near 1.0830 in the early American session on Tuesday but lost its bullish momentum. Early Wednesday, the pair fluctuates in a narrow channel at around 1.0800 as investors gear up for the Federal Reserve (Fed) policy announcements. The data from the US showed that inflation, as measured by the change in the Consumer Price Index (CPI), edged lower to 3.1% on a yearly basis in November as expected. Meanwhile, the Core CPI, which excludes volatile food and energy prices, rose 0.3% on a monthly basis to match the market consensus. Investors refrained from taking large positions after inflation figures and made it difficult for EUR/USD to find direction. The Fed is expected to leave the policy rate unchanged at 5.25%-5.5% following the last policy meeting of 2023. Since such a decision is already priced in, investors will scrutinize the revised Summary of Projections (SEP), also known as the dot plot, for fresh clues regarding the timing of a possible… Read More »EUR/USD Forecast: A hawkish Fed hold could trigger a leg lower

US headline inflation fell to 3.1% as expected, thanks to an almost 9% fall in gasoline prices since last year, although shelter inflation – which is where everyone sees the biggest potential for easing – remained sticky yet another month. Core inflation eased to 4% on a yearly basis, BUT headline inflation was slightly higher-than-expected on a monthly basis. And that small uptick has raised suspicions that the Federal Reserve’s (Fed) final stretch in combating inflation may be more challenging than anticipated.  The latter triggered a mini selloff in the 2-year bond right after the data, yet the selloff didn’t last long. The US 2-year yield is about where it was yesterday morning. Crude oil fell to $68pb even though the US oil inventories fell 2.3 mio barrels according to the API.  With the latest inflation report behind us with minimal fanfare, the Fed officials will lightheartedly keep interest rates steady this month. Economic forecasts and the dot plot will play a crucial role in providing insight into the perspectives of Federal Reserve officials regarding expectations for rate cuts.   According to activity on Fed funds futures, the Fed should gently start cutting the rates by May; that possibility is… Read More »Fed policy decision: Sweet and sour

Gold price is treading water near three-week lows of $1,976 early Wednesday. US CPI data fuelled the recovery in the US Dollar alongside the US Treasury bond yields.    Gold price remains exposed to downside risks amid a bearish technical setup on the 4h chart. The Federal Reserve policy decision holds the key to a fresh Gold price directional impetus. Gold price is challenging bullish commitments early Wednesday, sitting near the lowest level in three weeks of $1,976. Gold price is taking it easy following a good two-way business seen on the United States (US) Consumer Price Index (CPI) data release, as the focus now shifts toward the US Federal Reserve (Fed) policy announcements for a fresh trading impetus.   Federal Reserve decision to rock Gold price Despite a pause in the recent sell-off, Gold price appears vulnerable in Wednesday’s trading so far. Investors refrain from placing any fresh bets on the bright metal ahead of key event risk of this week, the Fed interest rate decision and policy outlook, especially after the US CPI inflation report revived bets for the Fed maintaining interest rates higher for longer. The CPI edged up 0.1% last month after being unchanged in October, the… Read More »Gold Price Forecast: XAU/USD looks vulnerable heading into the Fed interest rate decision