Monday, 30 January 2023 / Published in Forex Perception

Three of the world’s largest central banks, the Federal Reserve, European Central Bank, and Bank of England will hold policy meetings in the week ahead to fight a 40-year record high inflation.

The rate hikes decisions will be in the spotlight this week, with investors expecting both the ECB and BoE to increase their interest rates by 50 basis points. In comparison, the Federal Reserve is widely expected to slow the pace of interest rate hikes to a 25 basis points in the face of cooling inflation in the United States.

Dovish signals from the Federal Reserve?

The U.S.-based Federal Reserve will have its FOMC policy meeting on Wednesday, Feb. 01, where investors expect the world’s largest central bank to decide a 25-basis point rate increase to a range of 4.5% to 4.75%, slowing the size of the increase for a second straight meeting.

The Federal Reserve hiked its Fed’s Fund rates by 75 basis points four straight times last year before approving a 50-basis point move in December.

The eased inflation in recent months had eventually encouraged Federal Reserve into a less tightening monetary policy, at a time the U.S. labor market and economic growth also cooled in late 2022.

Expectations of slower rate hikes have also dented the U.S. dollar and Treasury yields. The DXY- U.S. dollar index which tracks the greenback against six major currencies, posted a seven-month low of 101.50-mark last week, while the yields on the 10-year Treasury fell as low as 3.30% in mid-January, further pressuring the dollar against major peers.

Any dovish signals from Fed’s statement are likely to be harmful to the greenback and positive for risky-sensitive assets such as tech and growth stocks, growth-led currencies, and cryptocurrencies.

ECB and BoE ahead of 50 bps rate hike:

Both the European Central Bank (ECB) and the Bank of England (BoE) will meet on Thursday, February 02, with markets expecting a rate hike of 50 basis points to 3% and 4% respectively.

Investors will also look for any signals of how much further and how fast policymakers intend to go since inflations still stand well above the ECB’s and BoE’s 2% inflation target.

The weaker dollar together with the hawkish rhetoric from ECB and BoE have helped Euro and Pound Sterling to bounce off from their multi-year lows of $0.95 and $1.04 a dollar, hit at the end-September 2021 to the current highs of $1.09 and $1.24.

Monday, 09 January 2023 / Published in Commodity Insights

The precious metals have extended last year’s rally into 2023, driven by the ongoing weakness in the U.S. dollar, and the falling bond yields on hopes for a less hawkish Federal Reserve in the next months, coupled with safe-haven demand amid fears of a potential economic recession in 2023.

The price of Gold touched the $1,880/oz key level this morning, its highest since early May 2022, while Silver traded above the $24/oz key resistance level, its highest since late April 2022.

Gold prices jumped from $1,830/oz to near $1,870/oz, or up 2% last Friday, boosted by softer U.S. jobs data (U.S. NFP-nonfarm payrolls grew at their slowest pace in a year in December), which pushed up the expectations for a lower U.S. inflation reading this week and an eventual change in the Federal Reserve’s hawkish rhetoric.

The softer NFP reading calmed concerns of the market participants an overheated U.S. employment market will prevent inflation from easing further this year and pushed up expectations that the Federal Reserve will soften its hawkish stance sooner than expected, letting up pressure on gold and other non-yielding assets.

On top of that, the dollar softened further on Monday morning as forex traders turned bearish on the greenback, with the DXY-U.S. dollar index hitting a fresh six-month low of 103.50 this morning while the yields on the 10-year U.S. bond fell to near 3,60%, on hopes of less-aggressive U.S. rate hikes by the Federal Reserve, making the dollar-denominated gold and silver further cheaper for overseas buyers.

The bullish outlook for precious metals is supported by the expectation that the Fed is ready to further slow its pace of interest rate hikes, with most of the traders pricing in only a 25-basis point hike in February, despite the warnings from the central bankers for higher rates for longer to bring back the inflation to Fed’s target of 2%.