With the US Federal Reserve telling the market in no uncertain term that it’s far too early to blink, the US dollar has been under pressure post FOMC meeting.

Front rates yields continue to rally as Fed Chair Powell emphasizes the Fed is very serious about its average inflation targeting: “The only way to give credibility to the new framework is to do it.”

He seems pretty pleased with himself, and maybe he did have a hand in, with the dots not indicating a hike in 2023. The dollar dropping makes sense to me. Indeed, this is a risk supportive Fed, and today’s communication is confirming that.

Stars not aligning for the Malaysian Ringgit

The stars can’t seem to align for the ringgit. Still, with the US dollar weaker across the board after the FOMC credible dovish messaging, it should outweigh the risk from slightly lower oil prices, given the underlying US dollar movements are the dominant factor. So, the MYR should see a bit of a relief rally today.

Gold gains some strength

With the US Fed delivering a credible Average Inflation Targeting twist by allowing the economy to run super hot above 2% and at the same time suggesting rate hikes are at least three years down the road, gold prices rose convincingly, leaving some bullion bears to admit an error in judgement and start to recant at least for today.

Assuming ‘steady dovish state’ after the FOMC hold, the $1761 spot could be the next focus. Friday is GLD option expiry, and the USD165 strike (USD1761 spot) has 530k oz in open interest, providing a target for speculators to throw darts.

However, after the relief rally, I still expect bond yields to move much higher, and the increase in nominal yields will probably hurt gold appeal through the real yield channel.

With the FOMC out of the way, institutional gold traders could trigger a sell-off in earnest on the expectation of solid US recovery, which could eventually shift ten-year yields above 2.25 %.

But I think bullion bears will be less inclined to go on the offensive until US yields start to pick up again and break new higher ground.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi