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Traders Increase Short Treasury Positions Ahead of Fed Decision, Eye Hawkish Signals

4 weeks ago

Traders are intensifying their short positions on Treasury securities in anticipation of the Federal Reserve’s decision scheduled for later on Wednesday, with expectations leaning towards the central bank maintaining rates at their current level for the fifth consecutive meeting. All eyes are on the forthcoming summary of the Fed’s economic projections, which will unveil whether the persistently robust data are prompting officials to reconsider their intentions of rate cuts, or if their forecast of three reductions this year remains unchanged despite inflation hovering above the Fed’s 2% target.

Should the Fed adopt a hawkish stance in its commentary, it would further bolster the recent uptick in yields and the dollar. Maintaining consistency with a hawkish script by Jerome Powell would likely limit market reaction. However, any deviation from this script with a dovish tilt could potentially trigger significant market volatility.

Beyond insights into future policy directions, the Fed will also embark on detailed discussions regarding its balance sheet this week, deliberating on when and how to slow down the pace of withdrawing excess cash from the financial system.

In other markets, oil prices stabilized after a two-day increase, spurred by reports from an industry group signaling a decline in US crude stockpiles. Meanwhile, gold traded within a narrow range as investors awaited cues from the Fed’s decision.

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