Gold up as dollar eases, markets eye Fed meet

European stocks look set to open largely unchanged on Tuesday as a two-day meeting of the Federal Reserve gets underway later today.

"Clearly, as we watch what's happening around our globe, the rather rapid advance of some of our potential adversaries is quite concerning", Northrop Chief Executive Wes Bush said on a call with analysts, Reuters reported. The Fed is expected to gradually reduce this program over the next few years. This is where Janet Yellen " s role is highlighted.

The political uncertainty that is surrounding the exit from the European Union (EU) is a risk with, over the weekend, the United Kingdom foreign secretary Boris Johnson adding to that uncertainty by painting a positive picture of what he called a "glorious" post-Brexit Britain, and rejecting the notion of paying for access to the single European market.

The Fed's counterparts in Frankfurt and Tokyo will be among those watching the process most closely, given the potential ripple effects on their markets and economies, and the lessons to be learned from the USA experiment.

However, policymakers have maintained expectations for a third hike to happen before the year is out and they are expected to reaffirm this stance.

Such an outcome would on the margin be seen as negative for the Dollar.

"What may be more important to keep an eye on is the dot-plot".

World stocks hit a record high ahead of the Fed meeting, with investors favouring risky assets ahead of perceived safe havens such as gold.

Estimates of where the Fed plans to take its balance sheet range from about $2 trillion to $3 trillion.

This will mark the end of the Fed's expansive quantitative easing programme, which was hastily implemented in the wake of the financial crisis a decade ago, in an effort to try and stimulate the economy.

The lesson, investors say, is that what really matters to the bond market isn't so much what the Fed is doing, but what the policy changes mean for the USA economy in the months and years ahead.

'Ongoing balance sheet reduction at the same time fed funds rate hikes continue at the same pace as this year might be too much tightening too soon for the expansion to bear without adverse consequences.'

Under Yellen, the Fed has raised interest rates four times from near zero and stopped accumulating assets.

The medicine is higher rates, however, there is a view that this is not the right medicine. A new batch of financial projections from the Fed are expected, which will lay the groundwork for any interest rate hikes going forward. Low inflation and impressive growth/low unemployment have posed a perplexing conundrum for monetary policymakers who have chose to trust in the data and start tightening despite the fact that inflation remains well below target.

In other words, inflation is signaling that the Fed should not increase rates.

  • Zachary Reyes