Gold Dropped as USD Strengthened In Anticipation Of The Fed's Interest Rate Decision
Gold (XAU) moved within a bearish trend on Tuesday and lost 2.1%, while DXY gained 0.64%. Even lower-than-expected US Consumer Confidence figures didn't cap the US dollar gains, probably due to risk-off sentiment increasing ahead of the Federal Reserve (Fed) monetary policy meeting.
US economic data continues to show that inflation is accelerating, and the market today will focus on comments from Fed officials and the monetary policy statement. Investors will look for any clues on whether the US central bank will cut interest rates this year. Saxo Bank notes that the market is closely watching to see whether Fed Chair Jerome Powell will make a hawkish move. Meanwhile, US Treasury yields have increased, exerting bearish pressure on gold, a non-yielding asset. Tuesday's data showed that US labor costs increased more than expected in Q1, confirming concerns about rising inflation and possibly delaying a rate reduction until later this year. Most traders now expect only one rate cut this year, compared to the three previously anticipated.
Jeff Klingelhofer, the co-head of investments and portfolio manager at Thornburg Investment Management, has pointed out that there will be no change in interest rates at today's monetary policy meeting. He believes the Fed will consider the recent string of stronger-than-expected inflation data and take appropriate action.
"There is no benefit to coming on too strong on Wednesday other than acknowledging reality and repeating what has been said before. The objective is to walk back the pivot and return to the message of "higher for longer"," he said.
Higher rates increase the opportunity cost of holding unyielding gold, reducing its attractiveness to investors.
XAU/USD continued to move in a downtrend during the Asian and early European trading sessions. Apart from the Fed interest rate decision at 6:00 p.m. UTC, ley events today include the US ADP Employment Change report at 12:15 p.m. UTC and the ISM Manufacturing PMI at 2:00 p.m. UTC. The data may cause sharp movements in XAU/USD. Figures exceeding expectations will put bearish pressure on the pair, while worse-than-anticipated numbers may encourage XAU/USD bulls.
Euro Decreases Ahead of Today's Fed Interest Rate Decision
On Tuesday, the euro (EUR) decreased by 0.51% as risk-off sentiment ahead of today's Federal Reserve's (Fed) interest rate decision prompted investors to buy safe-haven assets.
The US Dollar Index (DXY) continued its rally following the release of higher-than-expected Employment Cost Index data on Tuesday. The index surged by 1.2% in Q1, exceeding expectations of 1% and rising from 0.9%. The ongoing wage pressures in the US economy can amplify inflation concerns. Furthermore, hawkish remarks from Fed officials, indicating no need for immediate rate cuts, have put downward pressure on EUR/USD.
The euro failed to keep its gains despite strong economic data from the eurozone released on Tuesday. The eurozone Gross Domestic Product (GDP) numbers grew by 0.3% in Q1, exceeding expectations. Additionally, the Harmonised Index of Consumer Prices (HICP) showed steady year-over-year growth, while the core HICP, excluding food and energy prices, softened but still surpassed forecasts. Nevertheless, investors' confidence in an upcoming rate cut by the European Central Bank (ECB) in June remains high, as some ECB policymakers support easing monetary policy.
EUR/USD continued to decline in the Asian and early European trading sessions. Today, European markets are largely closed for Labour Day. Nevertheless, three data releases will likely trigger extra volatility in all USD pairs and may provoke sharp moves in EUR/USD. The US ADP Employment Change will be released at 12:15 p.m. UTC, the US ISM Manufacturing Purchasing Managers' Index (PMI) at 2:00 p.m. UTC, and the Fed Interest Rate Decision and a press conference will be held at 6:00 p.m. and 6:30 p.m. UTC, respectively. Better-than-expected US economic data should exert bearish pressure on the euro, while underperforming numbers may encourage EUR/USD bulls. Comments from Fed officials can also trigger additional volatility. Hawkish remarks indicating postponed rate cuts may strengthen the US dollar. Otherwise, EUR/USD is likely to rise.
Weak Australian Data and Strong USD Put AUD Under Bearish Pressure
The Australian dollar (AUD) lost 1.44% yesterday as the US Dollar strengthened after a stronger-than-expected Employment Cost Index numbers.
The US Dollar Index (DXY) has continued its rally in anticipation of today's US Federal Reserve (Fed) policy meeting. Following the release of higher-than-expected Employment Cost Index figures, a surge in US bond yields supported the US dollar. Furthermore, hawkish remarks by Fed officials pushed the US dollar higher. Thus, AUD/USD experienced downward pressure as the greenback rose.
The AiG Industry Index, released on Wednesday, indicated a contraction in Australian private business activity in March. Additionally, Australian retail sales numbers came out lower than expected, and this data might influence the Reserve Bank of Australia's (RBA) stance on interest rates. The RBA will have a monetary policy meeting next week and is widely expected to maintain interest rates at 4.35%. Nevertheless, higher-than-expected inflation data released last week has prompted speculation that the central bank might delay interest rate cuts.
AUD/USD slightly rose during the Asian and early European trading sessions. Today, several releases could trigger volatility in all USD pairs and affect AUD/USD in particular. Key events include the US ADP Employment Change report at 12:15 p.m. UTC, the US ISM Manufacturing PMI report at 2:00 p.m. UTC, and the Fed interest rate decision and press conference at 6:00 and 6:30 p.m. UTC. Stronger-than-expected figures may put the pair under downward pressure, while weaker results might encourage AUD/USD bulls. Comments from Fed officials on monetary policy or the economic outlook can also add volatility to the market.