Live Coverage: Fed to surprise rock Gold, stocks, US Dollar in any of these four scenarios
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UPGRADEWill it be a 25 or a 50-bps Fed cut? Uncertainty about the cut is rare, and there are other factors such as the dot plot and Chair Powell's conference. Live coverage of a critical event for Gold, stocks and the US Dollar.
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Fed decision critical for global markets
The Federal Reserve is set to cut rates – first and foremost because Fed Chair Jerome Powell said it clearly in Jackson Hole. However, there is significant uncertainty. At the time of writing, bond markets price a 63% chance of a 50-bps rate cut, and a 37% chance of 25-bps move. Uncertainty about the size of the move is rare – there is room for high volatility.
The second question is: are officials cutting because they are confident about having won inflation or fearful or a recession? There is a big difference.
Here are four scenarios:
1) Big cut, confident message: Stocks, Gold bullish, US Dollar bearish. In this scenario, Powell gives markets what they want without causing panic. A cut due to falling inflation—and with a scenario of a soft landing—is the best possible outcome. High probability.
2) Small cut, confident message: Whipsaw: stocks and Gold initially fall, the US Dollar initially rises, then stocks recover, the US Dollar falls, but Gold struggles to recover. A 25-bps cut would be disappointing and trigger a knee-jerk reaction. However, confidence in the economy and an open door to cut faster later would cause a reversal. Medium-high probability.
3) Big cut, concerned message: Whipsaw: stocks and Gold initially rise, the US Dollar falls, then the Greenback bounces, stocks fall, while Gold holds onto its gains. A 50-bps cut is good news, but if it comes for the wrong reasons, the picture changes. Worries about a recession would send equities down, and the US Dollar would receive safe-haven flows. Medium probability.
4) Small cut, concerned message: stocks down, Gold down, the US Dollar rises, then Gold recovers. In this scenario, the Fed begins small but is worried about the economy. That is a double blow for equities, and a double boost for the Greenback – which benefits from higher rates and also safe-haven flows. Gold suffers before recovering on hopes of lower rates. Low probability.
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Will it be a 25 or a 50-bps Fed cut? Uncertainty about the cut is rare, and there are other factors such as the dot plot and Chair Powell's conference. Live coverage of a critical event for Gold, stocks and the US Dollar.
Join FXStreet Premium to ask our analysts questions live, read actionable insights and get Gold and signal alerts.
Fed decision critical for global markets
The Federal Reserve is set to cut rates – first and foremost because Fed Chair Jerome Powell said it clearly in Jackson Hole. However, there is significant uncertainty. At the time of writing, bond markets price a 63% chance of a 50-bps rate cut, and a 37% chance of 25-bps move. Uncertainty about the size of the move is rare – there is room for high volatility.
The second question is: are officials cutting because they are confident about having won inflation or fearful or a recession? There is a big difference.
Here are four scenarios:
1) Big cut, confident message: Stocks, Gold bullish, US Dollar bearish. In this scenario, Powell gives markets what they want without causing panic. A cut due to falling inflation—and with a scenario of a soft landing—is the best possible outcome. High probability.
2) Small cut, confident message: Whipsaw: stocks and Gold initially fall, the US Dollar initially rises, then stocks recover, the US Dollar falls, but Gold struggles to recover. A 25-bps cut would be disappointing and trigger a knee-jerk reaction. However, confidence in the economy and an open door to cut faster later would cause a reversal. Medium-high probability.
3) Big cut, concerned message: Whipsaw: stocks and Gold initially rise, the US Dollar falls, then the Greenback bounces, stocks fall, while Gold holds onto its gains. A 50-bps cut is good news, but if it comes for the wrong reasons, the picture changes. Worries about a recession would send equities down, and the US Dollar would receive safe-haven flows. Medium probability.
4) Small cut, concerned message: stocks down, Gold down, the US Dollar rises, then Gold recovers. In this scenario, the Fed begins small but is worried about the economy. That is a double blow for equities, and a double boost for the Greenback – which benefits from higher rates and also safe-haven flows. Gold suffers before recovering on hopes of lower rates. Low probability.
Live financial market coverage
FXStreet covers major economic releases in a live blog format, to provide readers an instant verdict of the data, rapid analysis of key assets, and for Premium members, the abilty to ask our experts questions in real time.
FXStreet Premium
FXStreet Premium provides subscribers access to analysts, exclusive actionable analysis, signals, Ed Ponsi's webinars, trade plans and a bullish/bearish indicator for Gold on critical events. Join FXStreet Premium here.
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