Gold Continues to Rise Ahead of the US PCE Report
The gold (XAU) price rose 0.71% on Wednesday as the bullish trend in safe-haven assets remained intact in the absence of any notable news.
"Central banks continue to report ongoing gold purchases, driven by their desire to diversify their currency reserves. This is offsetting the weakness from investment demand, which focuses more on US rate-cut expectations," said UBS analyst Giovanni Staunovo.
Indeed, the probability of a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) in June has actually declined lately, but it had little impact on the gold. Usually, when interest rates are expected to remain high, XAU/USD falls. However, geopolitical instability and outflow from the US dollar pushed up the price of safe-haven assets. On the macro level, investors are still concerned about US inflation, so they await the publication of the Personal Consumption Expenditure (PCE) Price Index on Friday. The report could provide more clues on the path of US monetary policy. Until then, XAU/USD will likely move sideways with a minor bullish tilt.
XAU/USD was rising slightly during the Asian and early European trading session. Today, macroeconomic reports from the US could potentially trigger some volatility in gold, but the general trend is unlikely to change. The US will release its final Gross Domestic Product (GDP) for Q4 and the latest Jobless Claims report at 12:30 p.m. UTC. If unemployment claims figures are lower than expected, gold may potentially correct downwards towards 2,180. However, higher-than-expected numbers may push XAU/USD higher, probably towards 2,210. Also, the University of Michigan will release the revised Consumer Sentiment Index at 2:00 p.m. UTC. Still, its impact will probably be muted unless the figures surprise the market.
The Euro Remains Under Bearish Pressure
The euro (EUR) was essentially unchanged on Wednesday as the pair approached a pivotal support level near 1.08000.
Overall, the market still anticipates the European Central Bank (ECB) to pursue a more dovish monetary policy in 2024 than the Federal Reserve (Fed). Thus, the fundamental pressure on EUR/USD remains bearish. However, the interest rate expectations of the 2 central banks are shifting daily as new data comes out. Yesterday, Fed Governor Christopher Waller said that the recent data showing sticky US inflation may force the central bank to postpone cutting its interest rates in the short term. The comment was considered hawkish, putting downward pressure on EUR/USD. At the same time, Spain reported higher-than-expected inflation figures yesterday, which helped pause the decline in EUR/USD. In the medium term, the pair will likely continue to move sideways with a minor bearish tilt within a range of 1.07000–1.09000.
EUR/USD was mostly flat during the Asian and early European trading sessions. US will release 2 reports today at 12:30 p.m. UTC: Gross Domestic Product (GDP) and Jobless Claims. The data could potentially trigger some volatility in EUR/USD. Traders will probably be less interested in GDP figures because they cover Q4 of the past year. Instead, the main focus will be on the unemployment claims figures. Data exceeding the forecast will indicate a slowdown in the US labor market and may prompt investors to price in a higher probability of the rate cut by the Fed in June, giving a bullish momentum to EUR/USD. Conversely, the US dollar may strengthen if jobless claims figures drop below expectations.
The Canadian Dollar Stumbles After Hawkish Fed Remarks
On Wednesday, the Canadian dollar (CAD) strengthened by 0.12% but then declined following hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller.
Hawkish comments from Fed Governor Christopher Waller decreased the chances of imminent rate cuts from the US central bank, pushing the US dollar closer to a 1-month high and supporting the USD/CAD pair. However, the Fed's outlook suggests a less restrictive monetary policy, with an overall 75 basis points worth of rate cuts in 2024. The cautious stance from investors regarding the path of US interest rates may cap further gains in the US dollar.
Meanwhile, crude oil prices rose due to concerns over tighter global supply, especially with reduced exports from Russia. The ongoing conflict between Israel and Hamas also heightens worries about potential disruptions in the Middle East supply, pushing up oil prices. These developments support the Canadian dollar as the currency depends on commodity prices. Still, Capital Economics anticipates that the Canadian dollar will weaken against the US dollar this year. Ruben Gargallo Abargues, the assistant economist, believes that expanding interest rate differentials with the US and deteriorating terms of trade for Canada will put bullish pressure on USD/CAD. Lower crude oil prices and expected rate reductions by the Bank of Canada could affect the Canadian dollar's strength.
USD/CAD was rising during the Asian and early European trading sessions. Today's important event for CAD traders is Canada's monthly Gross Domestic Product (GDP) and the final US GDP reports. Also, Jobless Claims, Pending Home Sales, and the revised Michigan Consumer Sentiment Index will be released today, defining the short-term trend for USD/CAD. However, the main event of the week is Friday's US Personal Consumption Expenditures (PCE) Price Index, which will likely heavily influence the market.