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"We will not hesitate to continue to ease monetary policy as needed", traditionally said today the head of the Bank of Japan Haruhiko Kuroda at a press conference held after the meeting of the country's central bank on monetary policy issues. As you already know, following its meeting today, the Bank of Japan kept the key interest rate at -0.1%, and also left the size of the quantitative easing program unchanged.
“When it comes to an exit strategy, we need to think about how to get rid of the bloated balance sheet and raise interest rates”, Kuroda said. But so far, in his opinion, "it is too early to discuss a specific strategy for curtailing" the stimulus program.
This decision of the Bank of Japan was expected by the market, and it reacted poorly to the results of the bank's meeting.
Now the attention of market participants turns to the Fed meeting, which starts today and ends on Wednesday with the publication of the decision on the interest rate at 18:00 (GMT). The Fed's interest rate is widely expected to remain at 0.25%. Financial market participants also expect Fed leaders to reiterate that there is no need to change the parameters of monetary policy at this stage, given the combination of the country's ongoing economic recovery and continuing vulnerability to the coronavirus pandemic.
Nevertheless, market participants will carefully study the comments of the FRS representatives against the background of the high pace of economic recovery in the United States and rapidly growing inflation.
The possibility that the Fed leaders may hint at the possibility of an early start of a smooth reduction in the volume of the quantitative easing program, their comments on this topic can be extremely important for market participants in determining the direction of the further movement of the dollar.
Thus, during the period of the publication of the decision on the rate and during the Fed's press conference, which will start at 18:30 (gmt), volatility may rise sharply throughout the financial market, primarily in the American stock market and in dollar quotes, especially, if the decision on the rate differs from the forecast or unexpected statements are received from the FRS management. A more hawkish stance on the Fed's monetary policy will be seen as positive for the US dollar, while a more cautious stance will be seen as negative for the USD.
Meanwhile, on the eve of this event, the dollar is strengthening in the foreign exchange market. The yield on US government bonds is also growing again, thereby supporting the dollar.
Thus, the yield on 10-year US bonds rose today (for the third session in a row) to 1.580% from yesterday's 1.568% and after reaching a local 6-week low of 1.531% last week.
The DXY dollar index futures are traded near 90.98 at the time of publication of this article, 33 points above yesterday's low of 90.65, corresponding to early March levels.
Against the background of rising yields and the strengthening of the dollar, gold quotes stopped growing. In anticipation of the Fed's rate decision, the XAU / USD pair is likely to remain in a range near the current 1780.00 mark, below the key resistance levels 1793.00, 1797.00, 1800.00 (see Technical Analysis and Trade Recommendations).
The world situation with coronavirus remains tense, while the number of cases of COVID-19 is growing in Asia, Europe and even the United States, despite outstripping vaccination rates in this country. Earlier, US President Joe Biden promised that the entire US population will be vaccinated by the end of July. In this regard, the need for protective assets and, in particular, for gold remains.
The mild rhetoric of the statements of the FRS leaders and their propensity to continue the extra soft stimulus policy will most likely exert upward pressure on the prices of gold and the XAU / USD pair.
However, if the growth of US government bond yields continues, this, in turn, will become a deterrent to a stronger strengthening of gold prices.
