By Han Tan, Chief Market Analyst at Exinity Group
Markets have been reluctant to make big moves in the lead up to this week’s keenly awaited central bank decisions. However, such price consolidation suggests pent-up momentum stands ready to be unleashed if we get a massive surprise out of the Fed Wednesday.
Markets have priced in a 25bps rate hike by the FOMC at its first policy meeting of the year. Anything else would be a major shock.
If the Fed signals that its benchmark rates will have to breach the market-forecasted 5% peak in the target range, that should trigger a US dollar rebound. A Fed that presses home its hawkish intentions will also prompt an unwinding of the year-to-date gains seen in the likes of gold, stocks and even crypto.
However, if the Fed confirms market hopes that policymakers will soon pause with its rate-hiking regime, that may pave the way for the US dollar to resume its downtrend, while giving the green light for gold and risk markets to seek higher ground.
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