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The Fed Begins Tapering and Markets React, Bank of England Keeps Rates Unchanged & OPEC+ Maintains Production Levels

Gold prices rally as FED begin tapering

Gold prices were up by as much as $30 in Thursday’s session, in the aftermath of the Wednesday’s FOMC meeting.

The Federal Reserve opted to keep interest rates unchanged, however the bank decided to begin tapering its COVID-19 asset purchasing program.

During Wednesday’s meeting, they confirmed that Treasury purchases will be reduced by $10 billion and mortgage-backed securities by $5 billion.

💡 What is Tapering?
Tapering is the reduction of the rate at which a central bank accumulates new assets on its balance sheet under a policy of QE. Tapering is the first step in the process of either winding down—or completely withdrawing from—a monetary stimulus program that has already been executed.

Central banks help alleviate any market uncertainty by outlining their approach to tapering and by outlining the specific conditions under which tapering will either continue or discontinue. 

This decision comes as the U.S. economy has mostly recovered from the impact of the pandemic, enabling the Fed to remove this safety net, which was put in place as a result of the crisis.

XAUUSD hit an intraday high of $1,798, after trading at a low of $1,768. The S&P 500 also climbed to a record high.

GBPUSD sinks, as Bank of England keeps rates unchanged

In the United Kingdom, markets were left surprised as the Bank of England also opted to keep interest rates unchanged.

Many had anticipated the BOE would hike rates, in response to inflation rising to multi-year highs, and above the bank’s 2% target.

In a 7-2 vote, the MPC moved to keep the benchmark rate at 0.1%, leading to a huge drop in the cable rate.

GBPUSD fell to an intraday low of 1.3471, its lowest level since October 1st, after opening the session at 1.3684.

💡 Technical analysis
The GBPUSD fell and tested the 61.8% and recent swing lows off the hourly chart at 1.3567 to 1.35725. The price is stalling but remains near that target level. On a break the 1.3543 to 1.3553 area will be the next downside targets followed by 1.35188.

A move back above the 1.35867 swing low from October 13 and lows from Tuesday and Wednesday near 1.3608 would give sellers some cause for pause.

In addition to maintaining interest rates, a 6-3 vote saw the bank also decide to maintain its bond purchasing at a target of £875 billion.

OPEC+ opts to maintain production levels

Moving away from central banks, OPEC and its allies which includes Russia, opted to maintain its current output levels.

Despite oil prices rising to their highest levels in 7-years, the cartel decided to continue to increase production by 400,000 barrels per day per month.

WTI crude oil prices were down $7 in Thursday’s session, falling to an intraday of $78.46, after hitting a high of $85.12 shortly after the open.

💡 The Whitehouse comments
The White House on Thursday criticized a decision by top oil producers to keep oil output steady, saying OPEC and its allies appeared “unwilling” to use their power to help the global economic recovery.

Thursday’s decision from OPEC+ comes days after President Biden stated that, “The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right”.

This follows Wednesday’s report from the EIA which showed that inventories rose to 3.3 million barrels for the week to October 29.

“I believe in analysis and not forecasting.”

– Nicolas Darvas

Eliman Dambell

Senior Market Analyst