Markets Week Ahead: Gold Overreacts, Sterling Sinks and USD Advances

by Richard Snow, Strategist

GOLD WHIPSAWS AND SIGNALS A POTENTIAL MOMENTUM SHIFT

The precious metal rose phenomenally in the wake of the FOMC meeting and updated summary if economic projections. The US dollar acted as the release valve for all the hawkish sentiment that had been priced into the market. US activity, jobs and inflation data printed on the higher side of estimates in the lead up to the March meeting, resulting in some corners of the market speculating the Fed may feel obliged to remove one rate cut from the calendar.

This view helped the spur on the dollar. However, the Fed narrowly maintained their December projection of requiring three 25 basis point hikes for 2024, sending the greenback sharply lower and gold higher – to a new all-time high.

Now that markets have has a few days to digest the data and Fed guidance, the greenback has resumed the more medium-term uptrend, sparking a sharp reversal for gold. The potential evening start suggests that gold prices may continue to moderate in the week to come.

Gold Daily Chart

STERLING SINKS AFTER HAWKISH MPC MEMBERS GIVE IN

The Bank of England kept the bank rate on hold, as expected, but markets were more interested in the vote split after the February meeting revealed a three-way split in the decision to hike, hold or cut interest rates.

However, the encouraging February inflation print appears to have convinced the two remaining hawks on the committee to vote for a hold, with the votes tallying 8 in favour of a hold and the single vote to cut from well-known dove Swati Dhingra. The coming week is very quiet form the perspective of scheduled risk events, with Good Friday rendering it a shorter trading week for a number of western nations, including the US and UK. PCE data on Friday amid what is likely to be less liquid conditions has the potential to raise volatility into the weekend.