The big day has finally arrived and investors are seemingly in quite an upbeat mood going into the Fed interest rate decision.

The inflation data on Tuesday appears to have settled any remaining Fed nerves with markets now pricing in more than a 90% chance that the central bank leaves rates unchanged.

That seems a little overconfident given the data as a whole still paints quite a resilient and stubborn picture which could result in markets being caught out by a final hike, especially following recent BoC and RBA moves, but the Fed can still do so in July and that looks more likely at this stage.

Ultimately, a hold tonight may simply allow for more data to justify such a decision before the Fed acknowledges in July that the tightening cycle has likely finished. At which point the obsession will turn to the timing of the pivot, but again that’s getting a little ahead of ourselves. The FOMC will be determined not to pivot too early and may rather leave it a little late instead.

Oil rebound continues but it remains in the middle of its lower range

Oil is continuing to rebound today as technicals combined with promising developments in the US and China lift it off its lows. Brent was treading close to its 2023 lows, where it has fallen on a few occasions in recent months prior to this week. Each time it has managed to rebound higher and this time it had the helping hand of a Chinese rate cut and better US inflation data.

Whether that will continue may well depend on what further improvements we see in the data and what policy actions are announced by the PBOC in the coming weeks. We probably can’t count on OPEC+ to do anything of significance any time soon after the Saudis were effectively forced to go it alone last week.

Gold buoyed ahead of the Fed but range trade continues

US yields are a little lower and the dollar is off around half a percent early in the session on Wall Street which is giving gold a small boost ahead of the Fed decision. The yellow metal has been range-bound over the last four weeks, broadly between $1,940 and $1,980 and the inflation data has failed to change that.

The Fed announcement may have more luck, although I’m not entirely sure there’ll be a huge difference between a hawkish pause or a dovish hike, which are the two most likely outcomes. Perhaps the forecasts and Powell’s words will be the decisive element of this evening’s event.

Bitcoin holding up well but enthusiasm running thin

Bitcoin is trading a little higher on the day but continues to languish around its recent lows. It has broadly held up quite well in light of recent events involving the SEC but perhaps enthusiasm towards crypto more generally is running a little thin and could be weighing.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

 Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA