FX Analysis – Dollar dumps, Gold surges on Fed pivot

Wednesdays FOMC meeting was always going to be about whether we’d see a hawkish pushback against market expectations of a dovish Fed in 2024, or a validation of those expectations, from the market reaction to the meeting, traders decided the latter is the conclusion.

Rates were kept on hold at 5.35%-5.5% as expected but the updated dot plot and the language of the accompanying statement and Powell presser confirmed what most market participants were predicting, US rates have peaked, and multiple rate cuts are coming next year.

This saw the USD dump along with yields with the US Dollar Index (DXY) blowing through its 200-day SMA (where it had been finding support) closing at session lows of 102.77. The next minor support to the downside being the November swing low of 102.46.

The Yen was a particular beneficiary of the dump in US yields which saw the rate differential between the US and JP 10 Year tighten significantly. USDJPY dropping to a 142 handle as it played catch up to the yields and now testing a key support level around its 200-day SMA and December lows.

Gold surged over 30 USD an ounce as a falling Dollar and yields emboldened the bulls. XAUUSD retaking the psychological 2000 USD an ounce level after finding strong support at the October Lows – December high 50% Fib level. A retest of the major resistance at 2070 could be on the cards, and is a key level to watch for gold traders.

Central bank action continues today with both the SNB and BoE scheduled to release their latest rate decisions.