Gold and Pound Drop on Hawkish Fed Comments
2023.09.21 07:09
On Wednesday, the Nigerian naira (NGN) was the best-performing currency among the 20 global currencies we track, while the Russian rouble (RUB) showed the weakest results. The was the leader among majors, while the (GBP) underperformed.
Changes in Exchange Rates on 20 September
Hawkish Fed Tone Brought Gold Down on Wednesday
On Wednesday, rose above 1,945 but lost all gains in the American session after the Federal Reserve (Fed) delivered hawkish comments in its post-meeting statement.
As expected, the Fed held its benchmark rate unchanged, but the regulator’s tone was quite hawkish. According to the updated quarterly projections, the Fed may hike the base rate by the end of the year. Moreover, the market now projects only a 50-basis-points (bps) rate cut in 2024 compared to previously anticipated 100 bps cuts. Investors started to price a higher chance of a rate hike in November or December, positively affecting the (DXY) and negatively impacting gold.
‘We expect gold’s upside risk to be capped in the near term, and upward price momentum may not be sustained until there is increasing market confidence that global and U.S. interest rates are set to move lower, and the dollar softens,’ said Suki Cooper, Standard Chartered analyst.
XAU/USD was falling slightly during the Asian session. Today, traders should focus on U.S. macroeconomic reports as they will likely drive gold’s price in the medium term. Weekly Jobless Claims data and Philadelphia Fed Manufacturing Purchasing Managers’ Index will come out today at 12:30 p.m. UTC. Also, volatility could be triggered by the release of Existing Home Sales data at 2:00 p.m. UTC. ‘Spot gold may drop into a range of 1,917 to 1,921 USD per ounce, as a wave C from 1,900 may have completed around its 61.8% projection level of 1,943,’ said Reuters analyst Wang Tao.
GBPUSD Dropped Sharply Amid Hawkish Fed Comments
Initially, the British pound (GBP) rebounded from a three-month low on Wednesday but fell sharply in the American session after the Federal Reserve (Fed) delivered a hawkish monetary policy outlook.
Although the Fed kept its base rate unchanged, the regulator projected more rate hikes by the end of 2023 and fewer rate cuts in 2024. This hawkish stance surprised the market and boosted the U.S. dollar. Most recently, GBP/USD continued to fall during the early European session as speculation increased of whether the Bank of England (BOE) might follow the Fed and hold the interest rate unchanged today.
The BOE will announce its interest rate decision today at 11:00 a.m. UTC. Although the market generally expects the regulator to keep the rates unchanged, there is still a lot of uncertainty about the following announcement. Moreover, some analysts still expect the Central Bank to lift the base rate.
‘We stick with our call for a hike, but now see this as a coin toss,’ JP Morgan economist Allan Monks said.
Although the latest U.K. inflation figures have raised the probability of a pause in a rate-hiking cycle, inflation is the highest among G7 economies, well above the BOE’s target. Therefore, even if the regulator keeps the base rate unchanged, its post-meeting statement is unlikely to be dovish. Thus, GBP/USD may rebound from 1.23000 and rise towards 1.23700.
