Gold buyers flex muscles on dovish Fed concerns

Market overview

Trading sentiment is slightly positive as market players respond to the US Federal Reserve's 50 basis point rate cut from the September FOMC meeting. This optimism is supported by the FOMC statement and comments from Fed Chair Jerome Powell, indicating potential further rate reductions and slower inflation ahead. Interest rate futures show a 62% chance of a 25 basis point cut in November and a 95% chance of a 50 basis point cut in December. However, the Fed's dot-plot estimates suggest a total of 100 basis points in cuts by the end of 2024.

US Dollar hailed “buy the fact” bias

The Fed's 0.50% rate cut and mostly dovish comments initially pushed the US Dollar Index (DXY) to its lowest level in 14 months, but it later bounced back. By early Thursday, the Greenback had stabilized and gained some traction after Wednesday's close. The market had already priced in the Fed's rate cut, allowing the dollar to consolidate its losses during a period of slow momentum.

In addition to this consolidation, the US Dollar is finding support from negative headlines related to risks in China and the Middle East. Recently, China froze assets of nine US companies, while Israel is determined to eliminate Hamas and Iranian-backed forces, even at the cost of jeopardizing peace talks.

Other major currencies pare Fed-induced gains

EURUSD reached a monthly high after the Fed's rate cut but ended the day with slight gains as ECB policymaker Francois Villeroy de Galhau hinted at further rate cuts from the ECB. Similarly, USDJPY saw small losses and couldn't benefit much from the divergence between the Bank of Japan and the Fed, as Japan maintained its economic assessment in its latest report.

Meanwhile, GBPUSD surged to its highest level since early 2022, closing the day with greater gains, supported by mostly positive UK CPI data and expectations that the Bank of England will keep its monetary policy unchanged after recent rate cuts.

Antipodeans, Crude trade mixed

The New Zealand Dollar (NZD) saw the biggest gains against the US Dollar among G10 currencies, with the Australian Dollar (AUD) also remaining strong. Key factors include New Zealand's smaller-than-expected contraction in Q2 GDP and Australia's better-than-expected Employment Change.

Meanwhile, USDCAD has experienced a five-day winning streak due to weak crude oil prices, a key export for Canada, and dovish comments from the Bank of Canada (BoC). However, the Loonie pair paused its upward momentum early Thursday.

Crude oil struggled to capitalize on the US dollar's weakness, showing only a brief bounce amid concerns about global economic growth and increased OPEC+ supply. It also overlooked a larger-than-expected draw in weekly US crude oil inventories.

Gold struggles to justify haven status

Gold prices hit an all-time high of $2,600 shortly after the FOMC announcements but faced a two-day losing streak by Wednesday's end. Early Thursday, the metal rebounded, aiming for the previous day's high, despite the US dollar recovering after the Fed's 50 basis point rate cut. This latest rebound seems driven by market uncertainty regarding the Fed's next steps, along with concerns over potential rate cuts, trade tensions, and geopolitical issues.

Cryptocurrencies cheer Fed rate cut

Bitcoin (BTCUSD) and Ethereum (ETHUSD) are up for the third straight day, boosted by the US central bank's 0.50% rate cut and optimism about lower rates in the future.

Latest moves of key assets

• WTI Crude oil snaps two-day downtrend, up more than 1.0% intraday near $70.00 by the press time.
• Gold reverses pullback from all-time high while posting the first daily gains in three around $2,5654 at the latest.
• The USD Index lacks upside momentum but defends late Wednesday’s corrective bounce off the multi-month low.
• Wall Street closed with minor losses by stopping a seven-day uptrend but the Asia-Pacific shares edge higher. European and British equities lack clear directions of late.
• BTCUSD and ETHUSD both rise for the third consecutive day to around $62,200 and $2,420 respectively.

BoE, BoJ and mid-tier US data eyed amid likely sluggish week

Looking ahead, monetary policy announcements from the BoE and BoJ, along with second-tier US data, will engage momentum traders. However, no significant changes are anticipated, so the current trend is likely to persist. The US dollar could recover some post-Fed losses, affecting commodities and Antipodean currencies, while GBPUSD and USDJPY may show caution. Amid this uncertainty, gold prices are expected to remain stable.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!