From the beginning of the year there has been some anti-synchronisation between gold and the dollar, which usually have a strong negative correlation: as the dollar rises, the general rule is that gold falls and vice-versa. However, since the beginning of the year, the DXY and gold have developed a positive correlation by both being in upward channels. Although, if we take a shorter time frame on the graph, we can this golden dollar rule not being broken; since the start of this week, a rise in gold has meant a fall for the dollar.

The DXY dollar index is in a horizontal channel between 98.17 and 99.80. The range is an upward heading one, inside of which the dollar has dropped from the upper limit, testing the lower limit of the channel over the last week. If the bottom of the channel is broken, the DXY could head for 98.17, a value which it was at on 7th January.

The last Fed meeting didn’t have any real effect on the dollar. The US regulator did as expected and left rates unchanged, signalling a rise of anxiety regarding high volatility on global financial markets and a slowing of economic growth worldwide. The announcement which accompanied the Fed’s decision kicked up worries that the central bank will raise rates at its next meeting which is set to take place on 15-16thMarch. The likelihood of a rise in the rates at this next meeting is assessed at 25% by the futures market.

The intention to lift rates that was made clear in December was based on the fact that the Fed expects to see further strengthening of the US economy. However, judging by their recent announcement, they aren’t so sure about it.  The regulator noted in its press release that the “Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”

This statement caught the attention of the markets which were looking to spot any signal of Fed uncertainty. At the December session they had expressed certitude that the labor market was improving and that inflation would rise to their 2% target level. Now the FOMC are beginning to wonder whether they need to reassess their inflation forecasts and drop them, along with those of economic growth and employment at their next meeting.