Gold Declines Amid Profit-Taking and Strong US Economic Data
The gold (XAU) price dropped by 1.82% on Friday as the US dollar (USD) strengthened, driven by a stronger-than-expected July Philadelphia Fed Manufacturing Index.
Gold fell on Friday, marking its first weekly loss in a month, which some analysts view as a typical pullback following the metal's rise to record highs in the previous week.
XAU/USD's decline can be attributed to profit-taking by investors following a rise due to expectations of a rate cut by the Federal Reserve (Fed) in September.
This correction was triggered by stronger-than-expected data from the Philadelphia Fed Manufacturing Index for July. Additionally, the increase in weekly jobless claims was attributed to seasonal factors and didn't significantly impact the price.
"Besides profit-taking, the market is down on this narrative of a soft landing; it could put pressure on the price of gold, as investors will shift money from a safe to riskier investment", stated Alex Ebkarian, chief operating officer at Allegiance Gold.
This shift in market sentiment has decreased XAU/USD's price as investors move away from safe-haven assets in favour of riskier opportunities.
On the physical side, Asian gold demand was sluggish this week as customers were reluctant to make new purchases despite great discounts, instead opting to take profits on record-high bullion prices.
XAU/USD remained essentially unchanged during the Asian and early European trading sessions. Today, the formal macroeconomic calendar doesn't feature events that might trigger a strong reaction in the precious metals.
Meanwhile, investors are assessing the impact of President Joe Biden ending his reelection campaign and endorsing Vice President Kamala Harris. Statements from representatives of the US Democratic Party could trigger volatility in the markets, potentially affecting XAU/USD.
Euro Declines as USD Rebounds on Technical Buying
The euro (EUR) lost 0.17% against the US dollar (USD) on Friday as the US Dollar Index (DXY) continued to rebound from a four-month low reached last Wednesday.
Traders cited ‘oversold conditions’ and ‘technical buying’ as the main reasons for the recent strength in the greenback.
"It's perhaps a result of the selling pressure seeming rather over-done, particularly when one considers that US economic growth remains firm and that while the Fed is set to cut in September, easing will still be relatively synchronized across G10 central banks", said Michael Brown, market analyst at Pepperstone in London.
However, increased safe-haven flows may have also contributed to the US dollar's rally as Friday's worldwide cyber outage highlighted concerns about modern technology vulnerability.
Fundamentally, not much has changed for the EUR/USD pair. The market still expects the Federal Reserve (Fed) to pursue a more dovish monetary policy than the European Central Bank (ECB). Still, the divergence in policy expectations between the two central banks is currently not significant enough to justify a rise above 1.09000.
EUR/USD was falling slightly during the Asian and early European trading session. Today's macroeconomic calendar is relatively uneventful, so the established short-term bearish trend may continue. However, several US reports that will be released tomorrow may trigger excess volatility.
Traders should watch the release of Existing Home Sales and Richmond Manufacturing Index at 2:00 p.m. UTC on Tuesday. Higher-than-expected results will likely extend the short-term bearish trend in EUR/USD. Conversely, weak figures may pause or even reverse it.
Weak U.K. Retail Sales Numbers Pushed British Pound Down
The British pound (GBP) lost 0.17% against the US dollar (USD) on Friday as the US Dollar Index (DXY) continued to rebound due to ‘oversold conditions’ and ‘technical buying’.
GBP/USD reached a one-year high last Wednesday as the uncertainty surrounding U.K. general elections dissipated.
Recent macroeconomic data has decreased the chances for an imminent rate cut. Indeed, U.K. inflation remains elevated, with the annual core Consumer Price Index (CPI) staying at 3.5%, above the Bank of England's (BOE) target. Additionally, average weekly earnings are rising at a solid 5.7% rate.
However, the GBP/USD rally started to lose steam on Thursday, and the pair continued to fall on Friday after U.K. retail sales growth figures were much lower than was expected.
The data showed that retail volumes fell by 0.2% over the past 12 months and were 1.3% below their pre-pandemic level in February 2020. The pound fell sharply on the news, but traders attributed this unusual decline in retail sales to one-off and seasonal factors.
"It appears that the cooler, wetter weather over spring and early summer, combined with longer-term uncertainty in the period prior to the general election, has discouraged shoppers from both buying seasonal goods and making longer-term big-ticket purchases", said Lisa Hooker, PWC's leader of the industry for consumer markets.
Fundamentally, the market still expects the Federal Reserve (Fed) to pursue a more dovish monetary policy than the BOE, so the general bullish pressure on GBP/USD may persist for some time.
GBP/USD rose during the Asian session but lost all its gains during the early European session. Today's macroeconomic calendar is relatively uneventful, so the established short-term bearish trend may continue. However, several US reports tomorrow may trigger excess volatility in the market.
Traders should watch the release of Existing Home Sales and Richmond Manufacturing Index at 2:00 p.m. UTC on Tuesday. Figures exceeding expectations will likely prolong the short-term bearish trend in GBP/USD. Otherwise, the bearish trend may pause or even break.