The absolute focus of investors' attention today is the Fed meeting and the publication (at 18:00 GMT) of its decision on the interest rate. The level of interest rates is the most important factor in assessing the value of the currency. Investors look at most other economic indicators only to predict how rates will change in the future. The Federal Reserve is widely expected to raise interest rates again, not by 75 bps or 50 bps as it did in 2022, but by 25 bps to 5.00%, and may announce plans for its further hikes, but at an even slower pace.
The unexpected situation with the closing of U.S. banks Silicon Valley Bank and Signature Bank, and Swiss bank Credit Suisse makes many economists and dollar buyers more cautious about the prospects of further tightening of the Fed's monetary policy.
Some of them admit that if the leaders of the U.S. Central Bank raise the interest rate today, they will then take a pause, given the huge uncertainty in the global economy and the financial system, including due to the events on the closure of the aforementioned banks. And although they have already adapted to the situation with Ukraine, it threatens a new escalation, given the recent statements by the British authorities about the readiness to supply Ukraine with shells enriched with radioactive elements.
The dollar continues to fall ahead of the Fed's rate decision. If market participants consider this decision soft, the dollar decline will accelerate, given also the recent decision of the Fed and the U.S. authorities to support the creditors related to the said U.S. banks. On Sunday, the Fed announced a new emergency financing program for banks and emergency lending to strengthen the capacity of the banking system after the collapse of Silicon Valley Bank. The U.S. Treasury Department has already approved a plan to provide up to $25 billion in support for the program. The Fed will also issue around $250 billion to compensate SVB and Signature Bank depositors with the guarantees of the Treasury.
In such a situation—high inflation, political and economic uncertainty and amid expectations of soft decisions from the Fed—the purchase of protective assets, yen, government bonds, and gold again becomes very relevant.
Its quotes are very sensitive to the decisions of the world's largest central banks, primarily the Fed, on interest rates, and we can see how they broke through the $2000.00 mark again at the beginning of this week.
Despite yesterday's correction of the XAU/USD pair, which declined from 2000.00 to the short-term support level of 1937.00, we should expect its growth to resume.
If investors' fears are confirmed, and they consider today's Fed decision soft, and if the accompanying comments of its leaders and Powell's statements contain hints of the need to pause rate hikes, then we should expect the dollar to fall, and gold to resume its rally towards the last year's highs and $2070.00 per troy ounce. At the same time, new absolute records in the future are not ruled out.
Recall that the Fed's decision on the interest rate will be published at 18:00, and its press conference will begin at 18:30 (GMT). At 18:00, the FOMC report will also be released with a summary of economic forecasts, including a forecast for inflation and economic growth over the next two years.