Gold Dips After Higher-Than-Expected US CPI Report
Gold (XAU/USD) fell on Wednesday after a higher-than-expected US Consumer Price Index (CPI) report numbers.
The monthly core CPI unexpectedly increased by 0.3%, surpassing investor expectations of a 0.2% rise. At the same time, the annual headline inflation rate slowed more than anticipated towards 2.5%, while the annual core rate remained unchanged at 3.2%, as expected. According to the CME FedWatch Tool, markets now estimate an 87% probability of a 25-basis-point rate cut at next week's Federal Reserve (Fed) meeting, up from around 70% before the report. A more accommodative monetary policy usually supports gold by lowering the opportunity cost of holding non-yielding bullion.
XAU/USD builds on its modest rebound from the $2,500 psychological level during the American trading session on Wednesday, gaining some upward momentum. However, the precious metal remains below its all-time high due to declining prospects of a more aggressive policy easing by the Fed. This has led to a slight rise in US Treasury bond yields and pushed the US dollar (USD) closer to its monthly peak, putting slight bearish pressure on the non-yielding gold.
XAU/USD was rising during the Asian and early European trading sessions. Today, two releases will likely trigger additional volatility in all USD-related pairs: The European Central Bank (ECB) interest rate decision at 12:15 p.m. UTC and the US Producer Price Index at 12:30 p.m. UTC. Higher-than-expected PPI figures will exert bearish pressure on XAU/USD, while lower-than-expected results may encourage bulls. Additionally, the ECB president Christine Lagarde will hold a press conference at 12:45 p.m. UTC and may offer more clues on potential changes in monetary policy, triggering more volatility.
"Spot gold looks neutral in a range of $2,494 to $2,529 per ounce, and an escape could suggest a direction", said Reuters analyst Wang Tao.
Euro Declined on US CPI Data and Ahead of ECB Policy Meeting
EUR/USD slightly declined by 0.07% yesterday as the US Dollar Index (DXY) moderately grew by 0.06% due to mixed US Consumer Price Index (CPI) data.
The annual inflation rate in the US slowed for a fifth consecutive month from 2.9% in July towards 2.5% in August 2024, the lowest since February 2021, below forecasts of 2.6%. Still, the core inflation rate year-to-year met expectations of 3.2%, while monthly core inflation unexpectedly increased from 0.2% towards 0.3%. Despite a slight rise in inflation, the market gives an 87% probability that the Fed will cut interest rates by 25 basis points next week, according to the CME FedWatch Tool. Overall, the market has already largely priced the rate cut.
EUR/USD has been correcting upwards during Asian and early European trading sessions. Today, the European Central Bank (ECB) will convene a policy meeting at 12:15 p.m. UTC. It's highly probable that the regulator will again reduce interest rates. Traders are factoring in about 0.63 percentage points of anticipated easing by the regulator this year. However, the central focus will be on the statements made by the central bank officials at the press conference at 12:45 p.m. UTC. The ECB President Christine Lagarde may offer more insights into the central bank's plans regarding the monetary policy, adding volatility to the market and affecting the euro.
RBA's Hawkish Stance Drives Australian Dollar Higher
The Australian dollar (AUD/USD) gained 0.32% against the US dollar (USD) on Wednesday, even as the latest US inflation data came out slightly higher than expected.
Despite only a minor increase in US consumer prices in August, persistent inflation in key areas—housing and services—has dimmed the prospects for a substantial interest rate reduction by the Federal Reserve (Fed). According to the CME FedWatch Tool, the chances that the US central bank would opt for a 50-basis-point (bps) rate cut at a September meeting have dropped to just 13%. ‘Given the inflation data and with the Fed more likely to cut rates by 25 bps, the US dollar will possibly rebound in September before losing ground later this year and into 2025’, said Vassili Serebriakov, FX strategist at UBS in New York.
Meanwhile, AUD strengthened against the US dollar (USD) as the Reserve Bank of Australia (RBA) has been sending some hawkish messages lately. On Wednesday, Sarah Hunter, RBA's Assistant Governor, said that conditions in the labor market remained surprisingly resilient, suggesting that the central bank may need to delay rate cuts. The latest interest rate swap market data implies just 75 bps worth of rate cuts by RBA by mid-2025, whereas the Fed is expected to deliver 200 bps of reductions over the same period. With investors expecting a more gradual easing of monetary policy in Australia than in the US, AUD/USD may remain under bullish pressure in the medium term.
AUD/USD was rising during the Asian and early European trading sessions. Today's key event is the release of the US Producer Price Index (PPI) report at 12:30 p.m. UTC. Although the Fed has made it clear, employment has become more of a focus than inflation, PPI figures can still impact investors' interest rate expectations. If the figures are higher than expected, AUD/USD may drop slightly, but the underlying short-term bullish trend will probably remain in place. Conversely, lower-than-expected results may pull the pair above 0.67150.