Financial markets were relatively calm on Monday as investors remained cautious ahead of Wednesday’s Federal Reserve interest rate decision. The dollar index rebounded from an eight-week low, edging up just below 91. Spot gold edged higher as the dollar edged higher, having rebounded from its lows shortly after being hit by a wave of selling earlier. All three major U.S. stock indexes rose, with the Dow up 20 points at one point. This week, in addition to the Fed’s decision, markets will be on the watch for key events such as U.S. President Joe Biden’s speech to a joint session of Congress on Wednesday, a slew of corporate earnings and inflation data.
The dollar rebounded from eight-week lows on Monday and also gained against major currencies such as the Japanese yen and Swiss franc as investors consolidated positions ahead of the Federal Reserve’s policy meeting this week.
The dollar index.DXY rose slightly from an eight-week low to 90.99 and is now off its highs.
The dollar has fallen almost 3 per cent since the end of March as Treasury yields have traded in a tight range. Earlier this year, Treasury yields rose strongly, briefly supporting the dollar.
“We see traders gearing up ahead of the Fed meeting. The dollar has been under pressure for the past few weeks. So you’re going to see more sideways moves ahead of the FOMC meeting, “said Edward Moya, senior market strategist at online forex trading platform OANDA.
The Federal Open Market Committee wraps up its two-day meeting on Wednesday, and while no major changes in policy are expected, investors will be closely watching comments from Chairman Colin Powell.
Mr. Powell is likely to face questions about whether an improving labor market and the Novel Coronavirus vaccine mean the end of monetary easing. But most analysts expect him to say such comments are premature, which could put downward pressure on Treasury yields and the dollar.
While the Fed is likely to stick to its accommodative pace this week, the June meeting could be different given the strength of vaccine distribution and the optimism surrounding it, Moya said.
“This will complicate the outlook for the dollar,” Moya said. “The initial thinking was that the Fed would delay raising rates but could start tapering in the fourth quarter. Much of this is likely to undermine the argument that the dollar’s day of reckoning has arrived.”
Gold prices firmed on the back of cautious dollar moves ahead of this week’s Fed meeting.
Spot gold was up 0.1 percent at $1,779 an ounce in early trading, having fallen as low as $1,768.49 earlier in the day before rebounding from its lows.
Gold was hit by a wave of heavy selling orders, briefly falling below the $1,770 mark. The most active gold futures contract on COMEX traded 2,284 lots, with a total contract value of $404 million, in a single minute at 20:20 Beijing time on April 26.
Ole Hansen, analyst at Saxo Bank, said: “We have seen some short-term buying interest return to the market as the dollar weakens and bond yields fall. But if we don’t break higher soon, we could be in for another bout of profit-taking.”
“The main focus this week will be the Federal Open Market Committee (FOMC) meeting on Wednesday and what signals will be sent.”
Commerzbank analyst Carsten Fritsch said gold could benefit if Fed Chairman Colin Powell continues to downplay the recent rise in inflation at his press conference this week, as it would signal the Fed is prepared to accept the risk of the economy overheating and falling behind the yield curve.
U.S. stocks edged higher Monday as investors prepared for one of the busiest weeks of the first-quarter earnings season.
The Dow gained 20 points and the S&P 500 gained 0.2%. The Nasdaq Composite Index rose 0.6%.
Shares of electric car maker Tesla rose more than 1% after the market closed on Monday, ahead of the company’s earnings report.
Investors have a busy week ahead between the Fed meeting (April 28), President Joe Biden’s “Family Plan for America” (April 28), more inflation data (April 30) and a slew of corporate earnings reports.
About a third of the companies in the S&P 500 will update investors this week on their business performance for the three months ended March 31. Some of the world’s biggest technology companies are scheduled to report earnings this week, including Google (April 27 EST), Apple (April 28 EST), Facebook(April 28 EST) and Amazon (April 29 EST).
So far, most companies have beaten Wall Street’s expectations. Of the 25 per cent of companies in the S&P 500 that have reported first-quarter results, 84 per cent have reported earnings per share surprises and 77 per cent have beaten revenue estimates.
“Growth is still improving and liquidity remains ample,” Andrew Sheets, chief cross asset strategist at Morgan Stanley, said in a note.
“The bull market is still intact and I have a hard time seeing the kind of disasters that we saw in the summers of 2010, 2011, 2012 and 2015,” but a harder, more volatile summer does seem a possibility.