Gold struggles to build on Tuesday's gains, sits above $1340

• 10-year US T-bond yield adds more than 1% on Wednesday.
• US Dollar Index stays in tight range above 97.50.
• Wall Street is likely to open flat ahead of FOMC announcements. 

The troy ounce of the precious metal gained $15 on Tuesday as investors saw gold as a better investment alternative to major currencies amid the dovish shifts seen in central banks' tone. After advancing to $1354, however, the XAU/USD pair is now staging a technical correction and was last seen trading near $1342, losing 0.35% on a daily basis.

European Central Bank President Draghi yesterday said that rate cuts could be used to address deanchoring inflation expectations in the euro area. Now markets are waiting for the FOMC to release its updated economic projections and announce its monetary policy decisions. Although the policy rate is widely expected to remain unchanged today, markets will be looking to see if Chairman Powell will open the door to a rate cut later this year.

Meanwhile, the 10-year US T-bond yield is rising more than 1% on the day, suggesting the risk sentiment is turning positive. However, we are unlikely to see a major shift in the sentiment ahead of the FOMC and the subdued trading action is likely to continue.

“In our view, hard data, as well as anecdotal evidence (the Beige book reported some improvement in the pace of economic activity from April to May 24th), do not yet support such a downgrade to the Fed’s baseline scenario," said National Bank Financial analysts. "Trade tensions are indeed a concern and, consequently, we expect the FOMC will want to wait after the G-20 meeting (June 28-29) before judging if a more accommodative policy stance is required.”

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