How Gold Prices Could React to the Fed’s Upcoming Decision By Investing.com

Investing.com — A shift in sentiment favoring a 50 basis point rate cut by the Federal Open Market Committee (FOMC) this week, rather than the expected 25 basis points (bps), could be bullish in the short term, HSBC analysts said on Monday.

However, expectations for a full rate cut this year remain unchanged. HSBC economists still anticipate a 25 basis point cut.

In addition to the rate decision, the FOMC will also update its quarterly projections for real GDP growth, unemployment, inflation and policy rates. HSBC expects minimal changes to median forecasts for GDP growth and inflation, but unemployment forecasts could change slightly.

They anticipate the FOMC will cut its median projection for the federal funds target range at the end of 2024 to 4.50-4.75% (down from 5.00-5.25%), in line with their forecast for tapering of 25 basis points in September, November and December .

For 2025, the bank expects the FOMC’s median projection for the federal funds target range to fall to 3.75-4.00% (down from 4.00-4.25%), in line with their 75-year forecast additional basis points in rate cuts in the top three. quarters of next year.

If the FOMC cuts rates by 25 bps on Wednesday, it could bode well for the , especially with extended pricing for more rate cuts already factored into markets and signs of excessive USD short positioning.

“This would most likely weigh on gold,” analysts pointed out.

“Gold’s momentum is up, but some technical indicators such as the RSI are outside the Bollinger Bands and are showing signs that the market is increasingly ‘overbought’.” This leads us to suspect that an additional upside for gold may be very hard to come by,” they added.

While Wednesday’s FOMC decision is the focus of the market, a variety of data releases this week could also weigh on gold, silver and platinum group metals (PGMs).

Key data to watch includes US retail sales, industrial production, housing starts, jobless claims and headline index, as well as UK CPI and PPI, Bank of England decisions, Japan CPI and UK retail sales.