Gold price awaits Fed policy and employment data for directional steer

NEW YORK (January 31) Gold price (XAU/USD) remains sideways as investors await the Federal Reserve’s (Fed) first monetary policy of 2024 and the ADP Employment Change data for January. The Fed is expected to deliver a steady interest rate decision for the fourth time in a row. Investors will keenly focus on the bank’s guidance – future expectation – for interest rates, and that will probably direct  action in the FX domain.

Amid easing price pressures, further quantitative tightening is not expected from the Fed, therefore, market participants will focus on “when and at what pace” the central bank will start reducing interest rates. Investors are anticipating that the Fed will commence the rate-reduction process from May. 

Previous Fed meeting guidance was for 75 basis points (bps) of cuts in interest rates in 2024. The market has been focusing on expectations for early cuts, however, comments from individual policymakers have been advising for keeping interest rates elevated at least for the first-half of the year – until they become confident that the underlying inflation rate will return to the Fed’s 2% target in a timely manner.

Daily Digest Market Movers: Gold price stays on sidelines ahead of Fed meeting

• Gold price oscillates in a tight range near $2,040 as investors await the Federal Reserve’s monetary policy and the ADP Employment Change data for January.
• As per the CME Fedwatch tool, traders are confident about the Fed keeping interest rates unchanged in the range of 5.25-5.50% at the meeting.
• This would be the fourth straight time the Fed has left interest rates steady. 
• Price pressures in the United States economy are consistently declining, which have been refraining Fed policymakers from hiking interest rates further.
• Fresh commentary from Fed policymakers on the outlook of interest rates is of utmost importance as a steady monetary policy decision is largely expected.
• In the last monetary policy meeting, Fed Chair Jerome Powell as well as the Summary of Economic Projections (SEP), which contains the expectations of all members, guided a reduction in interest rates by 75-basis points (bps) in 2024, which boosted demand for risk-perceived assets significantly. 
• Guidance for 75 bps rate cuts also led to expectations for Fed commencing rate-cuts from March but then failed to gather momentum due to resilient US economic data.
• Investors will be interested to see how the Fed will adjust its three rate-cut guidance in coming policy meetings.
• The CME Fedwatch tool indicates that the Fed will probably start the rate-cut campaign from May now (instead of March). Absence of dovish signals for May’s meeting would build pressure on the Gold price and will improve appeal for the US Dollar.
• Meanwhile, the US Dollar Index (DXY) remains topsy-turvy ahead of the US ADP Employment Change data for January. According to the estimates, 145K job-seekers were hired, which were lower than 164K job additions in December.
• This week, various US economic indicators are lined-up, which will keep investors busy. The ISM agency will release the Manufacturing PMI on Thursday, which will be followed by official Employment data, which will be released on Friday. 
• On the global front, geopolitical tensions continue to provide a cushion to bullion. US President Joe Biden vowed to retaliate for aerial drone attacks on US bases near northeastern Jordan.

FXStreet