The gold (XAU) price reached an all-time high on Tuesday as the chances of a rate cut by the Federal Reserve (Fed) in September increased.
Gold has gained 6.36% over the past four weeks and 25.16% over the last 12 months. Gold reached $2,480—a record high—as hopes for a rate cut persisted, despite a rise in US retail sales strengthening the US dollar. This surge followed Federal Reserve Chair Jerome Powell's Monday statement.
He expressed ‘greater confidence’ that inflation is slowing towards the central bank's 2% target due to reduced price pressures and a slowing economy.
US retail sales indicator for June remained unchanged month-over-month, surpassing expectations of a 0.3% decline. Additionally, the June retail sales figure, excluding autos, outperformed the forecast of a 0.1% rise and increased by 0.4%.
China, the top gold consumer, still maintains a strong appetite for bullion, even though it paused purchases in May and June. According to policy insiders, industry experts, and data, this is due to China's bullion holdings remaining low amid ongoing geopolitical tensions.
"Gold's ability to find support in any condition this year is worth highlighting,’ noted Commonwealth Bank of Australia commodity strategist Vivek Dhar. ‘While we think gold prices face uncertainty in coming months, we think the uncertainty has a positive skew, raising the risk that gold rises above our forecast of $2,500 by the end of the year," he added.
During the Asian trading window, XAU/USD rose but then started declining in the early hours of the European session. Market participants are now turning their attention to the upcoming US Building Permits report at 12:30 p.m. UTC today.
A lower-than-expected figure will positively impact XAU/USD, potentially pushing the price towards $2,490. However, the pair may correct downward if the number exceeds expectations.
The Euro Traders Expect the ECB Meeting This Week
On Tuesday, EUR/USD moved sideways within the 1.08700–1.09050 range as the US Retail Sales report put significant bearish pressure on the pair.
The US dollar (USD) strengthened on Tuesday following a stronger-than-expected Retail Sales report. However, the report couldn't change market expectations regarding the path of US interest rates.
US retail sales remained unchanged in June instead of a forecasted 0.3% decline. An increase in sales in all sectors, apart from automobile dealerships, demonstrated the economy's resilience and boosted economic growth prospects for Q2.
Other data indicated that import prices remained unchanged in June. All this data gives the Federal Reserve (Fed) more room to reduce interest rates this year.
The markets are now sure that the Fed will reduce interest rates by at least 25 basis points (bps) at the meeting in September. The probability of another rate reduction in November is currently 64.6%, according to the FedWatch Tool.
Also, the market is waiting for the European Central Bank's (ECB) policy meeting this Thursday. The ECB is widely expected to maintain interest rates unchanged following the 25 basis point reduction in June. Investors will mostly focus on President Christine Lagarde's comments. Her speech could provide more insights into the timing of any further rate reductions.
EUR/USD has attempted to rise towards 1.0920 during the Asian and early European trading sessions ahead of the eurozone inflation report release at 9:00 a.m. UTC today.
If the data exceeds expectations, it may give a bullish impulse for EUR/USD. Meanwhile, lower-than-expected inflation figures could trigger a downward correction in the pair.
GBP Rises Following Mixed U.K. Inflation Report
The British pound (GBP) dipped below 1.3000 against the US dollar (USD) following a stronger-than-expected US Retail Sales report but then recovered.
The Pound Sterling (GBP) fell sharply below the key psychological level of 1.30000 during Tuesday's New York trading session. The GBP/USD pair declined following the release of stronger-than-expected US Retail Sales report for June.
Monthly sales remained flat, matching expectations, but were revised upwards from 0.3% in May. Retail sales numbers, excluding automobiles, increased by 0.4% in Juna and surpassed estimates of 0.1%.
The Retail Sales Control Group, closely linked to the consumer spending component of Gross Domestic Product (GDP), grew by 0.9%, up from 0.4%. This data supported the US dollar, although it didn't significantly impact the outlook on inflation or the US interest rate path.
The US Dollar Index (DXY), measuring the greenback's value against six major currencies, rebounded strongly from the key support level of around 104.200.
According to the CME FedWatch Tool, markets anticipate a near 100% probability that the Federal Reserve (Fed) will reduce borrowing costs in September.
This expectation keeps US Treasury bond yields near a multi-month low, likely capping USD gains. Consequently, the expectation of a more dovish US monetary policy supports a near-term positive outlook for GBP/USD.
During the early European trading sessions, GBP/USD rose following the release of the U.K. Consumer Price Index (CPI) report, which presented mixed figures.
Today, the focus will shift to the US Building Permits report at 12:30 p.m. UTC. If the figures exceed expectations, it could adversely affect GBP/USD, possibly driving the pair below 1.29600.
Conversely, lower-than-expected data could sustain the current short-term bullish trend in GBP/USD.