Powell still not ready for taper talk, dollar and Treasury yields sink, gold rebounds, bitcoin softens

FOMC holds the course

The FOMC statement did not deliver any surprises.  The Fed kept rates steady and maintained the USD120 billion bond-buying program.  The Fed upgraded their economic assessment of the economy noting that amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.

The first question asked to Powell was if it was time to start talking about, talking about tapering?  Powell reaffirmed that it is not time yet to have a conversation about tapering, sending Treasury yields sharply lower.  The S&P 500 index rallied to record high territory as Wall Street is starting to realize the Fed’s stubbornness on tapering likely means the dot plots are probably closer to being correct than what the market is pricing in.

The Fed’s outcome-based guidance and triple-down bet on not talking about tapering should provide an easy playbook leading up to the June 16^th FOMC meeting.  The US will need to see a couple of blowout nonfarm payroll reports, herd immunity reached before the June meeting, and inflation above 3.5% for the Fed to be willing to start talking about tapering.

FX

The dollar remained on the defensive as the Fed’s ultra-accommodative stance was affirmed.  With Treasury yields struggling to rise higher despite an economy that is starting to run hot, dollar weakness could remain firmly in place.

Gold

Gold prices turned positive after Fed Chair Powell stuck to script that it’s not time yet to have a conversation about tapering.  The Fed has anchored Treasury yields and that should be very positive for gold prices.  A few hotter-than-expected inflation readings will not be enough to change Powell’s commitment to a complete economic recovery.  Gold should start to make another attempt for the USD1,800 level and if the 10-year Treasury yield remains stuck between 1.60-1.70%, bullish momentum could take bullion towards the USD1,850 level.

Biden

President Biden’s first 100 days were extremely successful given his goal to get COVID under control.  The US total population has 29.1% fully vaccinated and 42.7% with at least one dose.  The population that is 65 or older has two-thirds vaccinated with 81.8% having at least one dose.

Biden will propose a USD1.8 trillion plan that will require tax increases that equal to 1.3% of GDP; that would be the largest increase since 1968.  This American Families Plan has strong public support but will face strong resistance from Republicans and more importantly, conservative Democratic Senator Manchin.

Dogecoin

Dogecoin is leading the rally in the cryptoverse after supportive tweets from the Dogefather, Elon Musk and billionaire Mark Cuban drove another round of strong retail interest.  Cuban has been making the rounds supporting Dogecoin and his appearance on Ellen was the trigger that helped Dogecoin recapture the 0.30 dollar level.

Bitcoin pared earlier losses that stemmed from disappointing news that the SEC is delaying the decision to approve VanEck’s Bitcoin ETF.  Bitcoin is still hovering around the US55,000 level and will likely continue to consolidate until Corporate America starts to show a bigger commitment to cryptos.

Powell spoke on digital currencies but didn’t say anything new.  He reiterated they want to get it right on a digital currency, rather than be first.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.