Global markets are waiting for the Federal Reserve’s policy meeting results later today, followed by Fed Chair Jerome Powell’s speech.

There’s a 99% chance the Fed will maintain interest rates flat at 5.5%, already the highest in 23 years.

Thus focus is on the policy statement, and any clues it might contain on the future path of US interest rates. 

A crucial item in particular that markets will focus on, is whether the Federal Reserve will delete the passage stating that Fed policymakers will monitor data to know whether “any additional policy tightening is required to achieve the 2% target”. 

Removing such a passage from the policy statement would be a strong sign and signal towards enacting interest rate cuts soon. 

Indeed, Deutsche Bank’s analysts believe the Fed has already started rate cut discussions following the previous December meeting, and will accelerate such talks next month. 

When Will the Fed Cut Rates?

The Fed will not raise interest rates once again in this cycle, so the question now is when will the Fed cut rates? 

The last interest rate hike was in July 2023, and since then, inflation fell sharply and is only 1% away from the 2% target. 

Just a few weeks ago, the futures markets put a 90% chance of a March interest rate cut, however, a string of recent bullish data and Fed remarks cut the odds to just 45%. 

Powell

Fed Chair Jerome Powell will walk a thin line in his press conference, and will likely signal the importance of waiting for data in the next two months to determine the likely path ahead. 

Expectations 

Obviously, a bullish stance by the Fed will hurt the odds of a March interest rate cut and might pave the way for maintaining rates high for most of 2024, which will underpin the dollar and treasury yields, and vice versa. 

Gold prices fell in European trade on Wednesday for the first session in three days off two-week highs on profit-taking and under pressure from the stronger dollar. 

Gold is heading for the first monthly loss since September, however the losses will depend on the results of the Federal Reserve's policy meeting this week.

Bearish remarks by the Fed will bolster the case for an interest rate cut in March, hurting both the dollar and US treasury yields and providing support to gold prices. 

Gold Prices Today 

Gold prices fell 0.2% to $2,032 an ounce, with a session-high at $2,038, after rising 0.2% on Tuesday, hitting a two-week high at $2,048 an ounce as US treasury yields lost ground. 

The Dollar

The dollar index rose 0.25% on Wednesday, approaching six-week highs at 103.82 against a basket of major rivals, pressuring greenback-denominated gold futures. 

The gains came after a string of strong US data, which showcases the flexibility of the US economy, while also hurting the odds of early US interest rate cuts this year. 

Monthly Trades 

Gold is down 1.5% so far this month, heading for the first monthly loss since September. 

US Rates

The markets are pricing in a 45%  chance for a March 20 interest rate cut by the Federal Reserve, while pricing in an 89% chance for such a cut in May. 

Overall, traders expect a total of 130 basis points of interest rate cuts in 2024, down from 160 basis points in previous forecasts. 

The Fed

The Federal Reserve is wrapping up its two-day policy meeting today, expected to maintain interest rates flat at 5.5%, already the highest since 2001, while providing clues on the future of interest rates and policies. 

The SPDR

Gold holdings at the SPDR Gold Trust fell 2.01 tones yesterday, the third decline in a row, to a total of 852.88 tonnes, the lowest since October 18. 

Euro fell in European trade on Wednesday against a basket of major rivals, resuming losses against the dollar and almost hitting seven-week lows on track for monthly losses due to mounting concerns about the widening US-Euro zone policy gap.

The European Central Bank is now widely expected to cut interest rates next April, with investors now awaiting important inflation data later today for January, important to gauge the likely path ahead for policies. 

EUR/USD

EUR/USD fell 0.3% to 1.0815, with a session-high at 1.0848, after rising 0.15% on Tuesday against the dollar following strong European growth data for the fourth quarter of last year, while rebounding from a seven-week trough at 1.07956. 

Inflation Data

Later today, consumer prices data for January will be released for Germany and other major European economies, with total euro zone data releasing tomorrow. 

European Rates

Following the latest ECB meeting and Christine Lagarde's remarks, the odds for an April ECB interest rate cut surged to 80%. 

Lagarde said that an interest rate cut in the summer is possible while opening the door as well for an April cut.

Monthly Trades

EUR/USD is down 2% so far this month, on track for the first monthly loss in three months, and the heftiest since September. 

Interest Rate Gap

The current US-Euro zone interest rate gap stands at 100 basis points, the lowest since May 2022, and was expected to shrink to 75 basis points in March, however as the odds of an early US interest rate cut faded, the gap could actually widen to 125 basis points. 

US Rates

Recent US data and bullish remarks by Fed officials hurt the odds of early interest rate cuts in March as markets expected a 0.25% interest rate in May. 

US stock indices stabilized on Tuesday near recent record highs ahead of the Federal Reserve's meeting.

Later today, the Federal Open Market Committee will convene for its two-day policy meeting, expected to maintain interest rates flat, while providing clues for the future of interest rates. 

And later this week, more corporations will release their results for the fourth quarter, chief of which Amazon. 

On trading, Dow Jones fell 0.1%, or 58 points as of 17:07 GMT to 38,391, while S&P 500 stabilized at 4929, as NASDAQ fell 0.4%, or 65 points to 15,562.