Gold – Will the Fed hint at a March cut or just leave the door slightly ajar?

  • Fed statement and press conference key
  • Will they hint at a rate cut in March?
  • Gold hovering between $2,000 and $2,500

It’s been a relatively slow start to trading on Wednesday which isn’t surprising considering what’s to come later in the day.

On another day, earnings from Alphabet and Microsoft may have dictated sentiment in the broader markets but as it is, investors are more focused on events in Washington, so tech aside markets are relatively flat.

There’s a very good reason why this is the case. Stock markets have been driven by two things over the last year, the explosion of AI and its seemingly endless possibilities and interest rate prospects. The latter is more important for most companies and the economy this year.

Markets have priced rate cuts extremely aggressively over the last couple of months but have pared these back slightly as we’ve got closer to today’s decision. At times, March was viewed as a banker for a rate cut and now it looks more of a coin toss, while in recent weeks 175 basis points were almost fully priced in this year; now it’s closer to 125.

Whether that remains the case will partly depend on the Fed’s messaging today. Remember, it was the December dot plot that triggered such a flurry of optimism into year-end. Will the Fed further fuel that or push back?

I expect Powell and his colleagues may opt for language that leaves the door open to a rate cut in March without giving the impression that it’s likely. Flexibility is key at this stage and there’s a lot of important data over the next six weeks that could fully justify beginning the easing cycle and policymakers will be very aware of that.

Stuck in a range ahead of the Fed

Gold appears stuck between $2,000 and $2,050 at the moment, torn between the prospect of multiple rate cuts this year and those expectations being pared back in recent weeks.

Gold Daily

Source – OANDA

There remains a plenty of optimism that rates could fall a lot this year which has enabled the yellow metal to remain above $2,000. But the data needs to deliver and some dovish messaging from the Fed today wouldn’t do the price any harm either.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam