Gold Decreases by 0.51% Amid Mixed US PMI Figures
The gold (XAU) price fell by 0.51% since the US Purchasing Managers' Indexes (PMI) reports showed mixed data.
Yesterday, the S&P Global Flash US Manufacturing PMI unexpectedly dropped to 49.5 in July, marking the lowest point this year below the forecast of 51.7.
In contrast, the S&P Global Services PMI exceeded the forecast of 55 and increased to 56 in July—the highest point in 28 months—up from 55.3 in June.
Investors have now adopted a cautious stance ahead of key US economic data releases, which could provide insights into the Federal Reserve's (Fed) potential timing for rate cuts.
The market is pricing in a 100% probability of a Fed rate cut in September. Lower interest rates will benefit gold by reducing the opportunity cost of holding non-yielding assets.
Analysts at Citigroup have projected that gold prices could surge even higher, potentially reaching $3,000 within the next 6 to 18 months. This outlook is bolstered by increasing inflows into gold-backed exchange-traded funds, indicating growing demand for gold as a safe-haven asset.
XAU/USD dropped by almost 1% during the Asian trading session. Today, traders should focus on the US Gross Domestic Product (GDP) Growth Rate report at 12:30 p.m. UTC. Lower-than-expected figures will probably push XAU/USD above $2,400.
However, the correction might continue if the figure exceeds the forecast. Also, Jobless Claims and Durable Goods Orders reports will be released simultaneously, which could also affect the market.
"Spot gold may break support at $2,366 per ounce and fall further, probably after a brief stabilization around this level", said Reuters analyst Wang Tao.
Euro Lost 0.13% on Weak German PMI Data
On Wednesday, EUR/USD lost 0.13% and moved within the 1.08300–1.08600 range. The US Dollar Index (DXY) didn't break above the 104.500 resistance level and declined towards 104.200, losing 0.13%.
Yesterday, the HCOB Manufacturing PMI for Germany unexpectedly declined towards 42.6 in July, the lowest point in three months, lower than market forecasts of 44.
At the same time, the HCOB Services PMI dropped to 52, below the expected 53.1. Meanwhile, preliminary estimates showed that the US Manufacturing PMI decreased to 49.5—the lowest reading since 2022.
In contrast, the S&P Services PMI rose towards 56, surpassing market expectations of 55 and being higher than 55.3 in June.
Now, investors are awaiting the release of US Gross Domestic Product (GDP) data today and personal consumption expenditure data on Friday, an important measure of inflation for the Federal Reserve.
These data may influence investors' expectations regarding potential interest rate reductions. The CME's FedWatch Tool indicates that markets expect a 62 basis point reduction in US interest rates this year, with a 95% likelihood of a rate cut in September.
EUR/USD continues to move sideways in a range of 1.08300–1.08600 during Asian and early European trading sessions in anticipation of the US GDP report at 12:30 p.m. UTC.
A number exceeding the forecast will put bearish pressure on EUR/USD, while lower-than-expected figures suggest a bullish outlook for the euro.
JPY Surges as BOJ Rate Hike Expectations Grow
The Japanese yen (JPY) gained 1.11% on Wednesday. The country's overall business activity index was higher than expected, while the US Dollar Index (DXY) continued to weaken despite relatively upbeat US Purchasing Managers' Indices (PMI) data.
A business survey released on Wednesday indicated a slight decline in Japan's factory activity for July, but better-than-expected results in the services sector pushed the overall index higher. At the same time, the US Composite PMI Index reached its highest level since April 2022 due to strong growth in the services sector. Still, investors were unimpressed.
"PMIs for the US were fairly positive, but not blowing anything out of the water", said Helen Given, associate director of trading at Monex USA.
Thus, USD/JPY continued to decline on Wednesday for the third consecutive day. The current bearish trend could also be due to investors closing out positions in yen-funded investments in anticipation of a potential shift towards a tighter monetary policy by the Bank of Japan (BOJ) at their meeting next week.
According to Reuters, the regulator will likely consider raising interest rates and unveil a plan to halve bond purchases in the coming years.
USD/JPY continued to weaken during the Asian and early European trading sessions, hitting a 5-week low. Today, investors should focus on the US macroeconomic reports: Durable Goods Orders for June and the Gross Domestic Product (GDP) Growth for Q2 at 12:30 p.m. UTC.
The GDP report will likely have a bigger impact on USD pairs as it will be the first estimate of US economic growth for Q2. Investors have turned rather dovish lately, expecting the Federal Reserve (Fed) to deliver more than 75 basis points worth of rate cuts by the end of January 2025.
Such strong confidence may be easily disappointed. Thus, if GDP figures are higher than expected, USD/JPY will likely rally sharply, possibly above 154.500. Conversely, lower-than-expected results will have only a minor bearish impact on USD/JPY, extending the decline to 152.000.