Gold prices edged lower as the US Dollar recovered from post-NFP losses but remained well within their near-term range. Traders were probably reluctant to commit to significant trend progression ahead of the upcoming FOMC policy announcement.
The priced-in probability of a rate hike implied in Fed funds futures stands at 100 percent. This means the increase itself may have limited market-moving potential, putting the spotlight on a revised set of economic and rate path projections as well as a press conference with Chair Yellen.
US economic conditions have been relatively stable since the beginning of the year. Furthermore, Fed officials continue to operate in an environment marred by considerable fiscal policy uncertainty. On balance, this suggests they will opt against major changes in forecasts or rhetoric.
The markets’ response to last week’s jobs data may be a blueprint for such an outcome. The figures sustained the status quo but did not advance the case for a still-steeper tightening path. That registered as a disappointment and sent the greenback lower as gold rose. More of the same may be in store this time.
Crude oil prices dropped to set a new three-month low after an OPEC report showed Saudi Arabia boosted output in February. Kingdom officials said the increase was meant to refill stockpiles and claimed shipments continued to fall but traders still worried that the cartel’s supply reduction deal may be unraveling.
The WTI benchmark swiftly erased intraday losses after API said US inventories fell by 531k barrels last week. Official DOE figures are expected to show a build of 3.25m barrels over the same period. If confirmed, that might rekindle selling pressure while a print closer to the API estimate may give prices a further boost.
The monthly report from the IEA is also due and may offer a contrasting view of February’s OPEC supply trends compared to what was on offer in the cartel’s own accounting. Further evidence pointing to ebbing output cut compliance may spur on the bears.
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