Noor Trends News, Technical Analysis, Educational Tools and Recommendations
Traders and market participants await the US Fed to adopt firm plans to raise interest rates and taper its holdings of U.S. Treasury bonds and mortgage-backed securities, which have swollen its balance sheet to about $9 trillion.
The Fed’s two-day meeting ends Wednesday. Analysts’ views of the meeting are mixed, with Deutsche Bank flagging a potentially hawkish surprise over the coming months, with as many as six or seven increases this year.
The gold index (XAU/USD) has rallied on Tuesday, adding around 0.5% to the scale after climbing from a low of $1,834.95 to a high of $1,853.88 so far. The US dollar has come under pressure after reaching a two-week peak over tensions between Russia and the West. However, there was a five-year Treasury auction that has weighed on the US dollar considering the bond market’s appetite for US Treasury bonds at the current coupon.
The anguish in central Asia took a back seat today to pave the way for the outcome of the Federal Open Market Committee’s two-day meeting that draws to a close on Wednesday. Investor were expecting the Fed to announce the end of QE prematurely and signal a readiness to hike in March.
In turn, there was a focus on today’s 5-year Treasury auction. The bid-to cover ratio was high and so too was the yield with the US selling 5-year notes at 1.533% vs WI 1.547%on a $55 billion sale. That was the highest yield since October 2019. The prior was 1.263% and the bid to cover at 2.50 vs 2.41 prior. This indicates that the market could be pricing the Fed too hawkish for the medium term. This is a bullish theme for gold.
Economic Data
According to the latest US Conference Board survey, headline Consumer Confidence fell to 113.8 in January from 115.2 (revised lower from 115.8) in December, less than the expected decline to 111.8.
The drop slight drop reflects the impact of the rapid spread of the Omicron Covid-19 variant in the US over the last few weeks, but remains substantially above prior pandemic lows in the 80 area, endorsing the Fed’s view that the economy has become more resilient to each new Covid wave.
Other Developments
The Euro fell to a one-month low on Tuesday as tensions between Russia and the West over Ukraine drew investors to the dollar, a day before the Federal Reserve is expected to reveal details on its plans to tighten monetary policy.
Western leaders stepped up preparations for any Russian military action in Ukraine while Moscow said it was watching with great concern after 8,500 U.S. troops were put on alert to deploy to Europe in the event of an escalation. read more
The Intentional Monetary Fund said the world’s two largest economies, the United States and China, would grow more slowly than it predicted in October. The IMF sees America’s economic output increasing 4% this year after rising by 5.6% in 2021. It shaved 1.2 percentage points off its previous forecast due to “lower prospects” that Congress will pass President Joe Biden’s Build Back Better economic plan, lingering supply chain disruption and the rising chance of aggressive action by the Federal Reserve to contain inflation.
Uneven and rather unpredictable trading conditions have prevailed for a second successive session on Tuesday. Ahead of the US close, the S&P 500 is still trading in the red territory but has recovered sharply off earlier session lows, giving a sense of De-Ja Vu after yesterday’s ferocious late-session recovery.
The net result for G10 forex markets, which have been sensitive to equity market fluctuations is a slightly pro-risk bias. The Dollar Index (DXY) is trading marginally higher on the day but has pulled back from earlier highs 96.20s to underneath the big figure.
The US dollar shrugged off mixed Consumer Confidence data, the headline index for which saw a slight fall owing to inflation and pandemic and Omicron-related concerns but not as much as expected, and slightly stronger than expected house price growth in November.
Also Read:
Euro falls to one-month low as Ukraine tensions persist
IMF slashes US and China growth forecasts
Bulls Still Control Gold Price Ahead Of Fed’s Rate Decision
Major Currencies Trade With Pro-Risk Bias
USD/CHF Near Two-Week Highs Amid Speculations On SNB Intervention
Hot CPI Data Shield Australian Dollar From Stock Market Losses
S&P 500 Dips As Monday’s Late Session Momentum Fades
US: CB Consumer Confidence Falls To 113.8 Above Expectations
