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Eyes are on the Bank of England & the US NFP

Eyes are on the Bank of England & the US NFP

The Federal Reserve on Wednesday concluded its first monetary policy meeting of the year, voting to maintain borrowing costs unchanged at their present 5.25% to 5.50% range, in a decision widely expected by market participants.

The FOMC also dropped its tightening bias but signalled that it is not yet ready to ease its stance imminently. Powell went further during his post-meeting press conference, admitting that policymakers may not be confident enough to slash the cost of money at their next gathering.

With the likelihood of a March cut appearing slim now, the U.S. dollar may have room to rebound in the near term, but the recovery thesis depends on incoming information showing that the economy continues to perform well. In the absence of good data, a March move is still a possibility.

Bank of England Rate Decision

The Monetary Policy Committee of the Bank of England is expected to announce its interest rate decision on Thursday afternoon. Market analysts don’t expect the BoE’s board to proceed with any change in monetary policy. The last time that the BoE adjusted borrowing costs was in August 2023. Ever since then, CPI inflation felt closer to the bank’s target but still has not reached the targeted level. 

BoE policymakers have said rate cuts at the current stage would be “premature” as they could lead to a rebound in price pressures. Commenting on the upcoming rate decision, market strategists at Vanguard said: “Given the large undershoot to the inflation forecast in recent months, we expect the tightening bias to be dropped and instead anticipate monetary policy committee members will lay the groundwork for rate cuts in the middle of the year. Starting to cut as early as the Spring seems too early in our view, given the persistence of core/services prices.”

US Nonfarm Payrolls January 2024

Two days after the Fed’s monetary policy decision, the US Bureau of Labour Statistics (BLS) will release the Nonfarm Payrolls report for January 2024. Economists expect the figure to come in at 180,000, lower than December’s 216,000 number.

It should be noted that the December NFP report surprised analysts as the figure was higher than anticipated so one more surprise in January could strengthen the scenario saying that the Fed could delay rate cuts.

If job growth surprises to the downside by a wide margin, a March rate cut could reenter the picture. This would exert downward pressure on Treasury yields and the U.S. dollar but should support gold prices and other precious metals, including silver.

Conversely, if NFP numbers beat expectations and come on the strong side, we could see further unwinding of dovish bets on the Fed’s policy path – a bullish outcome for yields and the greenback. Gold, however, would not fare well in this scenario.

Have your trading charts ready for these high impact events!

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