Uncertain macro-economic environment to keep commodity investors wary

Commodities saw a relief rally this week as the United States Federal Reserve (Fed) hinted at a pause in rate hikes and easing concerns of an immediate contagion. Dollar fluctuated largely between 102 and 104 levels as risk sentiments wavered ahead of Federal Open Market Committee (FOMC) policy decision and as markets assessed emergency measures taken by the US and Europe to safeguard the global banking system.

Initially, risk appetite improved on reports that US officials are reportedly studying ways to temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, in order to avert a potential financial crisis. Also, UBS Group AG agreed to buy rival Credit Suisse Group AG with Swiss regulators playing a key role in a rescue deal as governments looked to contain the financial crisis. First Republic Bank too, took a sigh of relief after a sharp sell-off as US Treasury Secretary Janet Yellen said the government stood ready to provide further support for smaller lenders, if needed.

Besides, FOMC policy decision was on expected lines as the Fed raised the federal funds rate by 25 basis points (bps) to between 4.75 percent to 5 percent and kept the “terminal rate” unchanged from the December estimate at 5.1 percent by the end of 2023. Projections indicated Fed expects only one more quarter-point rate hike before they pause, exerting pressure on both dollar and US treasury yields. Dollar tumbled to 101.91, the lowest since January, while US 10-year treasury yields slipped below 3.4 percent. However, Fed Chair Powell was quick to add that rate cuts are currently not in the central bank's “baseline expectation”. Still, the greenback did not see a significant rebound as CME Fedwatch tool shows Fed funds futures pricing in 75 bps rate cuts by end 2023.

COMEX Gold plunged to $1,936.5 per troy ounce after hitting a one-year high of $2,014.9 per troy ounce earlier in the week, but rebounded sharply above $2,000 per troy ounce on renewed concerns regarding the banking sector after Treasury Secretary Janet Yellen said the FDIC was not considering providing "blanket insurance" for banking deposits. Fed Chair Powell too couldn't promise to backstop all deposits.