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Gold refuses to rest on its laurels. Discontent with last week’s accolades, yesterday the precious metal made yet another leg up to $3,038 an ounce. There are many factors tipping the scales in gold’s favour: tariff uncertainty, potential escalation in the Middle East between Israel and Gaza, but also the distant but ever-present possibility of an interest rate cut on the Dollar. The latter point is not expected to materialise during the Fed’s meeting later today, nor even on the following meeting in May. By June however, rate traders are expecting some form of action to bring down rates on the Greenback. Of course, the scales could rapidly tip the other way should trade and military conflicts simmer down over the coming weeks.
For the vast majority of markets participants, the Federal Reserve maintaining rates at current levels is a foregone conclusion, which makes the actual wording and justification of the decision all the more important. Recent stats relating to the US economy have been a mixed bag. Employment and growth are a concern, but inflation prints continue to fall towards the Fed’s targets, giving the central bank marginally more breathing room. What the various board members make of all this will become clearer over the hours and days to come.
In a widely anticipated move, this morning the Bank of Japan opted to maintain rates on the Yen at current levels, prompting very little reaction in USDJPY. Tomorrow’s rate decisions on the Pound Sterling and Swiss Franc are not expected to caused much of a stir either. The ambiguity concerning tariffs has not been kind to the Dollar, but financial markets are nothing if not fickle. Should the fog clear with regards to trade, currency flows may rapidly change course.
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