Forex Market Analysis: Gold Price & Fed Policy Outlook 9 Jan 2024

January 9, 2024

Daily Forex Analysis: 9 Jan 2024


  • Gold Price Forecast Overview:
    • Gold prices displayed a downward trend in early 2024 after a robust performance in late 2023.
    • Traders are cautious about entering new bullish positions, seeking more clarity on the Federal Reserve’s monetary policy outlook.
  • Concerns and Market Behavior:
    • Traders hesitate due to the fear of a potential bearish reversal if anticipated deep interest rate cuts for 2024 do not materialize.
    • The Federal Open Market Committee (FOMC) signals potential borrowing cost cuts, but market expectations may be overly dovish given the current economic conditions.
  • Key Focus on December U.S. Inflation Report:
    • Gold market attention shifts to the upcoming release of the December U.S. inflation report, a high-impact event.
  • FedWatch Tool and Probabilities:
    • The FedWatch Tool indicates market probabilities for the FOMC meeting outcomes.
    • The tool provides insights into market expectations regarding the Federal Reserve’s actions.
  • US Inflation Data Insights:
    • Focus on the core Consumer Price Index (CPI) yearly reading, expected to moderate slightly.
    • The headline CPI is forecasted to reaccelerate, posing challenges for policymakers.
  • Potential Outcomes for Gold:
    • Gold’s upward trajectory is favored by weak inflation numbers.
    • A CPI report in line with or above forecasts may lead to a hawkish policy repricing, contributing to gold’s recent corrective decline.

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  • Fed Officials Caution Against Early Rate Cuts:
    • Two Federal Reserve officials expressed their belief on Monday that maintaining current interest rates for an extended period could help bring inflation back to the central bank’s target.
    • This stance contradicts Wall Street expectations of potential rate cuts in the first quarter of the year.
  • Fed Governor Michelle Bowman’s Perspective:
    • Fed Governor Michelle Bowman, while keeping the option of interest rate hikes open, suggested the possibility of a further decline in inflation with the current policy rate.
    • She moderated her previous view, stating that raising rates might not be necessary to achieve the central bank’s 2% inflation target.
  • Evolution of Views:
    • Bowman, speaking in Columbia, S.C., noted that her perspective evolved, considering the potential for inflation to decrease while keeping the policy rate steady.
    • While acknowledging the eventual need to lower rates to prevent excessive restrictiveness, she emphasized that such a move is not yet warranted.
  • Divergence from Investor Expectations:
    • Bowman’s comments do not align with the aggressive expectations of investors, who have priced in six rate cuts this year, double the median projection of three cuts by all Fed officials. The anticipated timeline for these cuts is March.
  • Atlanta Fed President Raphael Bostic’s Position:
    • Atlanta Fed President Raphael Bostic, in separate remarks, echoed a cautious approach, emphasizing the inclination to keep rates steady until confirming the return of inflation to target.
    • Bostic previously predicted the possibility of two cuts in the second half of the year, maintaining a restrictive stance.
  • Concerns and Risks:
    • Bowman expressed concerns about potential upside risks to inflation, citing geopolitical tensions affecting food and energy prices.
    • Financial conditions easing could lead to a growth reescalation, hindering progress in lowering inflation or causing a reacceleration.
    • The risk of a strong job market keeping the services portion of inflation persistently high was also highlighted, especially given the recent robust job gains and wage growth.
  • Future Policy Decisions:
    • While the current policy stance aims to bring inflation down over time, Bowman remains open to raising the federal funds rate in the future if incoming data indicates a stall or reversal in progress on inflation.

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