Market Looking For March Rate Hike Signal

Looking ahead to today’s FOMC meeting, the market is firmly expecting a hawkish delivery from the Fed. While no policy adjustment is expected at this point, the market is, however, looking for the Fed to essentially confirm a rate hike in March. Pricing for a March lift off has been steadily increasing since the December meeting. With the Fed having upgraded its economic forecasts and dot plot projections for the year, the market is going into this meeting in a rather one-sided fashion.

With this in mind, the Fed will need to deliver in order to see further USD upside from here. If the Fed’s language and outlook becomes yet more hawkish, perhaps in light of diminished risks from omicron, this should prove to help lift USD and spark a fresh leg of the rally. However, if the Fed disappoints the markets, if there is little in the way of new information or no clear signal that a hike is coming in March, then there is plenty of room for USD longs to be unwound here.

Where to Trade The FOMC Meeting?

Gold

Gold prices have been grinding steadily higher over recent weeks. The crash in equities markets has certainly proved supportive and, given risks around Russia/Ukraine conflict, further safe-haven support seems likely. If USD trades lower today in response to any market disappointment around the FOMC meeting, gold prices are likely to benefit nicely. To the topside a break of the 1871.04 level will be a firmly bullish development, putting focus on 1919.92 as a target.