Gold Rose Despite Strong US Core PCE Data
The gold (XAU) prices rose by 0.94% on Friday despite higher-than-expected US сore Personal Consumption Expenditures (PCE) Price Index figures.
PCE numbers aligned with the forecast, increasing by 0.1% month-over-month and 2.5% year-over-year. The core PCE, excluding volatile prices for food and energy, slightly exceeded analyst projections, rising by 0.2% from May and 2.6% year-on-year.
Personal income growth slowed to 0.2%, below the expected 0.4% in May, while disposable income rose by only 0.1%. Making up about 70% of the US economy, consumer spending aligned with expectations of 0.3%.
Spending on services and non-durables increased by 0.2% and 0.5%. Moreover, the saving rate dropped towards 3.4%, the lowest since December 2022.
Bill Adams, chief economist at Comerica (NYSE:CMA) Bank, notes that ‘Americans who entered the recent bout of high inflation with narrow financial cushions are feeling pressure on their standards of living’.
Expectations for rate cuts remain unchanged, with markets pricing in a 100% rate reduction at the Federal Reserve (Fed) September meeting and anticipating one more rate cut by the year-end. Lower interest rates increase the appeal of gold and precious metals.
Additionally, rising geopolitical tensions in the Middle East have bolstered safe-haven assets like gold. This follows Israel's vow of strong retaliation against Hezbollah after accusing the Iran-backed group of a weekend strike.
XAU/USD fell slightly during the Asian trading session. Today, the formal macroeconomic calendar is rather uneventful, so XAU/USD may remain under technical bearish pressure.
If the conflict in the Middle East escalates, gold will move higher due to rising safe-haven flows. The key levels to watch are support at $2,350 and resistance at $2,420.
Euro Gained Despite Higher-Than-Expected US PCE Data
On Friday, EUR/USD moved within 1.08450–1.08700 and gained 0.09%, while the US Dollar Index (DXY) lost 0.07%.
The US dollar declined against most major currencies on Friday following the release of the US Personal Consumption Expenditures (PCE) report.
The US core PCE Price Index number increased by 0.2% from May, slightly higher than the market forecast of a 0.1% rise. While core PCE inflation was slightly above expectations, overall year-over-year numbers eased as anticipated, and personal income growth declined more than forecast.
Overall, the data didn't change expectations for a US rate cut—the market expects the Federal Reserve (Fed) to start its easing campaign in September.
The University of Michigan survey showed that consumer sentiment rose slightly, contrary to the Reuters consensus forecast of a sentiment staying unchanged. One-year inflation expectations remained stable at 2.9%, while the five-year outlook increased slightly towards 3%.
The data is likely to prompt the Fed to start reducing interest rates in September, aligning with market expectations.
‘The recent trend continues to support the belief in the market that we are on track to achieve an inflation rate of 2% over the long term’, said Vail Hartman, interest rate strategist at BMO Capital Markets in New York.
The PCE data shows a positive dynamic in tackling inflation. The next Fed policy meeting is scheduled for the end of July. Based on CME's FedWatch Tool, the markets give less than a 5% chance of a rate cut at this meeting. However, a rate reduction is 100% anticipated in September.
EUR/USD has been trading bullish during the Asian and early European trading sessions. Today, there will be no significant news that could affect the market. Key resistance and support levels are 1.08700 and 1.08500, respectively.
USD/CAD Faces Resistance Despite the Weakening Canadian Dollar
The Canadian dollar (CAD) touched the important resistance level at 1.38500 on Friday but failed to break above it and finished the day essentially unchanged.
USD/CAD has been rising steadily since mid-July, mostly due to weaker CAD. Concerns about slow economic growth and low oil prices pushed the Bank of Canada (BOC) to pursue a dovish monetary policy, putting bearish pressure on the national currency.
Indeed, the BOC cut its benchmark interest rate last Wednesday by 25 basis points (bps) for the second month, bringing it towards 4.5%. Furthermore, the regulator said that additional decreases in borrowing costs are probable if inflation continues to decline in accordance with the latest projections.
The central bank also downgraded its 2024 economic growth projection from 1.5% to 1.2%, citing increased household debt and reduced spending.
"The dovish language in the releases paints a picture of officials who are growing more worried about the likelihood of recession", said Royce Mendes, head of macro strategy at Desjardins Group.
The market currently prices in a 68% chance that the BOC will cut the rates again at the September meeting. Overall, analysts are factoring in just under 50 bps worth of rate cuts by the end of the year. Meanwhile, the US Federal Reserve (Fed) is preparing to deliver its first rate cut in September.
Friday's Personal Consumption Expenditures (PCE) data highlighted the improving inflation environment that could prompt the Fed to finally start easing monetary policy.
The USD/CAD rally may pause for now as the Canadian dollar will likely rise somewhat given that the dovish BOC stance has already been priced in, while Brent crude oil price seems to have found support in the 80 area.
USD/CAD was falling during the Asian and early European trading sessions.
Today's macroeconomic calendar doesn't feature any major events that could significantly impact the pair. Thus, USD/CAD may continue to move sideways with a minor bearish tilt.