Markets pause as Fed meeting kicks off

FX markets remain relatively subdued, with traders content to stay on the sidelines ahead of tomorrow’s conclusion of the two-day Federal Reserve monetary policy meeting. The Fed’s FOMC is expected to keep rates unchanged, preferring to wait for a fresh month’s-worth of data before deciding.

However, this meeting will still be closely watched, as will Fed Chair Powell’s press conference on Wednesday evening. Investors will be anxious to hear his comments concerning tariffs and the likelihood of looser monetary policy for the rest of the year.

The US dollar was weaker in early trade this morning. But looking at the Dollar Index suggests a market that continues to consolidate, albeit near multi-year lows. The Japanese yen was stronger across the board, getting a modest safe-haven lift.

With little movement across major dollar pairs overnight, the broader tone reflects a market in wait-and-see mode, lacking conviction as participants brace for potential policy signals. The muted action underscores the cautious sentiment, as investors avoid making directional bets before hearing from the Fed.

Gold rallied more than 1% overnight, building on yesterday’s near-3% surge that took the metal to a two-week high. Gold has now gained over 4% since Friday’s close, and the daily MACD has started to curl up, having come down significantly from the overbought levels that pertained a fortnight ago. Gold is now back within 4% of its all-time high of $3,500. 

The sharp turnaround underscores renewed safe-haven demand, with investors positioning defensively ahead of the Federal Reserve meeting. Silver outpaced gold overnight, jumping 1.5% after underperforming in the previous session, as upward momentum returned to precious metals.

Crude oil soared over 2% in early trade on Tuesday. It rebounded after gapping lower over the weekend. Yesterday, front-month WTI dropped back towards $55 per barrel following the decision from OPEC+ to accelerate output hikes, confirming plans to raise production by over 400,000 barrels per day (bpd) in May. This brings the April–June increase to 960,000 bpd, which was well above market expectations.  The move has intensified fears of oversupply amid the weakening demand growth forecasts linked to tariffs and China-related weakness.

Natural Gas prices extended gains, adding another 2% overnight, continuing a recovery off recent lows near 3 BTU.

Cryptocurrencies were flat this morning, and they continue to consolidate. On Friday, Bitcoin closed in on $100,000 to hit its highest level in two and a half months. Investor attention now turns to upcoming political events, including two crypto-themed Trump fundraising dinners in May.

The VIX held steady this morning, sitting just above 23, as stock market volatility remains contained despite the loaded macro calendar. While the index remains elevated by historical standards, its recent stability suggests markets are taking the busy week of central bank meetings, data releases, and geopolitical headlines in their stride—for now.

The muted move may reflect the cautious but measured sentiment among investors who hope that the Federal Reserve and Bank of England will provide some clarity for the month ahead.

The economic data calendar is light today, with PMI Services from across the Eurozone as the only print of note. All eyes will be on the Federal Reserve tomorrow, followed by the Bank of England on Thursday and a string of Fed speakers to round off the week.

AMD and Super Micro Computer report after the close tonight and will be watched closely for updates in the semiconductor sector. Tariffs return to the spotlight on the political front as Trump imposed a 100% levy on the film industry, with pharma next in line. Motor giant Ford suspended its 2025 guidance, citing the uncertain trade landscape.

Markets appear to be consolidating, with the US rally finally pausing after nine straight gains. Investor focus now turns squarely to the Fed, with today’s cautious tone likely to persist ahead of tomorrow’s decision and Powell’s press conference.