As expected, the FOMC leaves policy in place – the Fed Funds rate remaining at 0.25-0.5%. “Still, some acknowledgement of the improved economic backdrop is likely in the statement and the market will go on slowly raising the odds of a 2016 rate hike”, Kit Juckes, strategist at Societe Generale, said in a note on Wednesday.
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Prior to Wednesday’s surge, the price of gold had been in retreat mode, pulling back from the new two-year high around $1375 that had been reached less than three weeks ago.
Big banks aren’t giving up on a rate hike just yet, and their most recent comments reinforce that. The September and December meetings will include the summary of economic projections and a press conference by Fed Chair Yellen.
The weaker-than-expected data cast doubt on whether the Federal Reserve will raise interest rates by the end of the year. With any further breakout above that high, the next major upside resistance target is around the $1420 level. “The fallout from Brexit for the US economy is limited”. But in May, it became clear that the Fed felt markets were underpricing the chance of a hike in June, and this created a strong move of United States dollars strength leading into June. There’s also plenty of pieces of economic data being released throughout the day, although the majority of this is low to medium impact data that is likely to have only relatively small impacts on the markets.
Still if Abe is unable to deliver on promises of jump starting the economy with a broad stimulus initiative, the Japanese Central Bank could feel added pressure to lower interest rates deeper into negative territory. “Enough has gone by to see that there is real growth out there, and hopefully they will give the strongest indication, more than they ever had”, he explained. “We continue to believe that a September hike is unlikely, but expect conditions to be met by December to justify a rate hike, assuming no additional shocks”.
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Even that seems like a tall task, if you ask Wall Street traders, who are betting that the next rate hike won’t come until next year, according to Fed fund futures tracked by CME Group. In that statement, the Fed had removed a dovish-phrase that had previously added fuel to markets under the presumption that the Fed wouldn’t hike anytime soon; so this was somewhat of a “less dovish” example of wordsmithing. After the July meeting, its next meeting on rate decisions will be on September 21.
