Gold eases on firm dollar; markets await US Federal guidance

Gold Price Forecast Brightens amid Drop in US Treasury Yields

Yen benefits as dollar faces expectations for an accommodative Fed

Markets expect the Fed to strike a dovish tone when it meets this week, and bets on an interest rate cut have increased after weaker-than-expected manufacturing data on Friday. The Federal Reserve Bank of Atlanta, meanwhile, projects the US economy will expand at just a 0.4 percent clip in January, February and March, and consumer and producer price indices in recent months haven't shown almost the sort of inflationary pressures that would warrant future rate hikes.

It also said it will stop shrinking its bond portfolio in September, a step that should help hold down long-term interest rates.

"In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate", the statement said.

The CTE Group's FedWatch tool - which projects the odds of a rate hike at any given FOMC meeting in the eyes of analysts, investors and monetary policy spectators - on Wednesday morning indicated there was virtually no chance of a rate increase at the Fed's March meeting. The most important formal change in Fed policy is a reduction in the rate of reduction of the Fed's $4 trillion balance sheet to just $15 billion a month starting in May, and to zero by the end of the year.

Removing the possibility of a 25-bps rate hike in 2019 underscores a bigger concern for yields, however: that the Federal Reserve is becoming increasingly warry of the state of the USA economy. It projects one quarter-point rate hike in 2020 and none in 2021.

The price of oil, one of Canada's major exports, was supported by the prospect of prolonged OPEC-led oil supply curbs though concern that an economic downturn may dent fuel consumption curbed gains. Traders lifted the odds of the Fed cutting rates to around 48 percent.

Gold Price Forecast Brightens amid Drop in US Treasury Yields

Beginning in October, the Fed will roll its maturing holdings of mortgage-backed securities into Treasuries, using a cap of $20 billion per month.

Treasury yields fell after the Fed's statement, with the benchmark 10-year touching a 14-month low. "Overall inflation has declined", though excluding food and energy it "remains near 2 percent", the central bank said.

They downgraded their growth estimate for this year to 2.1% from the 2.3% projection made in December. Employment, retail sales and business fixed investment are all growing more slowly, Powell added. "Its forecast materials should show a measurable markdown to growth and rates expectations for this year, but those changes have been well telegraphed".

Policy makers slightly lowered their expectations for inflation relative to their last set of economic projections.

Inflation for the year is now seen at 1.8 percent, compared to the Fed's forecast in December of 1.9 percent.

Meanwhile, palladium rose 0.3 percent to $1,601.47 an ounce, after surging past the $1,600 level for the first time to register a record high at $1,606 in the previous session. "The question for the market remains whether or not the four rate hikes from a year ago and the unwinding of the balance sheet at the same time could be continuing, even now, to tighten financial conditions".

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