Fed signals possible rate cut pivot

Dollar drops, gold soars on Fed rate cut speculation

By Ahmed Azzam | @3zzamous | 29 November 2023

Market open
  • Dollar descends on Fed's policy shift comments

  • Waller's warning sparks attentions by dovish comments

  • Gold rises to six-month high

  • Bill Ackman bets on an early Fed rate cut

In a volatile trading session, the US dollar descended to a three-month nadir while Treasury bonds sustained a rally, fueled by mounting expectations of imminent rate cuts by the Federal Reserve. Simultaneously, gold surged to its highest level in nearly seven months. Equities experienced a decline in Hong Kong and the mainland, as European futures grappled for direction, and S&P 500 contracts made incremental advances. Brent crude traded below the $82 mark, with market attention fixated on the OPEC+ meeting on supply.

The unresolved dispute over output quotas for certain African members loomed large at the OPEC+ meeting, contributing to market uncertainty, according to insider delegates.

Gold surges to seven-month high on dovish Fed remarks

On Wednesday, gold edged toward the $2,050 per ounce threshold, marking its most elevated point in almost seven months. This surge was primarily attributed to a substantial downturn in the US dollar, which was further exacerbated by dovish sentiments expressed by US Federal Reserve officials. Fed Governor Christopher Waller conveyed that current monetary settings are restrictive enough, hinting at a potential rate cut in the forthcoming months. Chicago Fed President Austan Goolsbee underscored significant progress on inflation, prompting market observers to peg a 40% likelihood of the Fed initiating easing measures as early as March 2024.

Investors are awaiting the second print of third-quarter GDP data, which may see a revision to 5%, providing additional insights into the economic landscape.

Ackman warns of economic risks

Renowned investor Bill Ackman has positioned himself for a scenario where the Fed initiates rate cuts as early as the first quarter. Ackman expressed concern about a potential hard landing for the economy if rate cuts are not implemented promptly, citing evidence of a weakening economic backdrop. The swaps market is fully pricing in a Fed move in June, reflecting the prevailing sentiment of market participants.