Gold price edges down as US Dollar soars ahead of Fed policy meeting

NEW YORK (March 19) Gold price (XAU/USD) drops to $2,150 in Tuesday’s European session as a strong US Dollar weighs heavily on the precious metal. The appeal for Gold remains subdued amid uncertainty ahead of the Federal Reserve’s monetary policy decision and the release of the quarterly dot plot on Wednesday. 

The Fed is widely expected to keep interest rates unchanged in the range of 5.25%-5.50% for the fifth time in a row, but uncertainty over rate-cut projections keeps the Gold price on the tenterhooks. Investors are scaling back bets that the Fed could begin reducing interest rates in June, putting further downside pressure on Gold.

Meanwhile, 10-year US Treasury yields have fallen slightly to 4.32% but remain broadly strong on hopes that the first Fed rate cut, which is currently anticipated in June, will be delayed. Higher-than-expected consumer and producer inflation data are casting doubts among investors that this policy pivot will indeed occur in June or will be further postponed.

Daily digest market movers: Gold price falls sharply while US Dollar rallies

• Gold price falls sharply to the crucial support of $2,150. Investors turn risk-averse towards bullions ahead of the interest rate decision by the Federal Reserve, which will be announced on Wednesday. 
• The CME FedWatch tool shows that after the conclusion of the two-day meeting, the Fed will keep interest rates unchanged. Investors are eagerly awaiting the quarterly dot plot, which shows projections for interest rates over time by Chair Jerome Powell and other officials. The dot plot will signal any change in projections for rate cuts this year.
• December’s dot plot indicated that Fed officials are anticipating three rate cuts in 2024. If the Fed dials down rate-cut projections, the Gold price could face significant downside pressure. Currently, the CME FedWatch tool shows a 60% chance that at least three rate cuts will be announced by 2024. The chances for at least three rate cuts were slightly below 80% before the release of the hot consumer and producer inflation data for February.
• In addition to the dot plot, the Fed will also release economic projections for inflation and economic growth. An upbeat economic outlook would strengthen the appeal of the US Dollar. The United States economy has been performing better on the grounds of consumer spending and labor market than any other country in the Group of Seven (G-7) economies.
• The US Dollar Index (DXY), which measures the US Dollar’s value against six rival currencies, rises to 104.00 amid improvement in safe-haven bid. 

FXStreet