Gold Hit a New Record High
Gold (XAU/USD) rocketed by 1.89% on Thursday. XAU/USD broke above the major $2,530 resistance level and established a new all-time high after the US reports were released.
Gold prices surged due to expectations of a potential Federal Reserve (Fed) rate reduction amid indications of a decelerating US economy. The US Department of Labor reported yesterday that initial claims for unemployment benefits increased by 2,000 towards a seasonally adjusted level of 230,000, exceeding a forecast of a 1,000 decrease.
Simultaneously, US producer prices increased by 0.2% in August, slightly more than the expected 0.1%, owing to rising service expenses, although the general trend indicated a decrease in inflation. According to CME's FedWatch Tool, market expectations are now split—there is a 55% likelihood of a 25-basis-point interest rate cut at the Fed meeting on 18 September, with a 45% possibility of a 50-bps decrease.
The outlook for gold continues to be highly positive, as central banks' purchases were higher in the previous quarter, and technology use has also increased, according to the World Gold Council. US elections are likely to have an impact on gold prices, as well as geopolitical risks.
"Spot gold may extend gains to $2,590 per ounce, as it has climbed far above a consolidation range of $2,473 to $2,529," Reuters analyst Wang Tao commented on the short-term perspective for gold.
Gold has continued to move higher during Asian and early European trading sessions. The price hit the $2,570 resistance level. Today, the market waits for the Michigan Consumer Sentiment Index report at 2:00 p.m. UTC. A higher-than-expected number may trigger a downward correction, while a lower-than-expected one may fuel further gold's rally.
Euro Rally Continues as ECB Hints at Hawkish Stance
The euro (EUR/USD) gained 0.57% against the US dollar (USD) on Thursday after Christine Lagarde, the President of the European Central Bank (ECB), downplayed expectations for another interest rate cut next month.
As expected, the ECB lowered its deposit rate yesterday by 25 basis points (bps) towards 3.5% and cut its refinancing rate by 60 bps towards 3.65%. However, in its post-meeting statement, the ECB reiterated that service inflation remains high and that the regulator will keep rates sufficiently restrictive for as long as necessary.
Additionally, Christine Lagarde clarified that the future trajectory of interest rates is not set in stone and that the central bank will make decisions on a case-by-case basis, avoiding any pre-determined commitments. The market generally treated the decision as a ‘hawkish cut’ and pulled EUR/USD above the critical 1.10500 level.
Indeed, the rally in EUR/USD occurred despite yesterday's US Producer Price Index (PPI) data actually being higher than expected. At the same time, the Jobless Claims report was slightly weaker than expected, keeping investors hoping for a sizeable 50-bps rate cut by the Federal Reserve (Fed) next week.
Overall, the current divergence in monetary policy expectations between the ECB and the Fed continues to favor the euro. The latest interest rates swap market data implies just 50 bps worth of cuts by the ECB and more than 100 bps by the Fed by the end of 2024.
EUR/USD rose during the Asian and early European trading sessions. Today, the key event is the US Consumer Sentiment Report publication by the University of Michigan (UoM) at 2:00 p.m. UTC. The report will contain the latest data on US consumers' financial confidence and inflation expectations—leading economic indicators—that may impact the Fed's rate decision next week. Higher-than-expected figures will likely push EUR/USD lower, but not significantly. Conversely, lower-than-expected results will almost certainly pull the pair above 1.11000.
BTC Gains 1.35% as Odds of a 50-bps Fed Rate Cut Rise
Bitcoin (BTC) rose by 1.35% on Thursday as the chances of a 50-basis-point (bps) rate cut by the Federal Reserve (Fed) in September have increased.
Thursday's higher-than-expected US Jobless Claims data and a Wall Street Journal article discussing the Fed's rate cut dilemma have reignited expectations for a significant rate cut in September, said Christopher Wong, currency strategist at OCBC.
Traders are now pricing in a 45% chance of a 50-bps rate cut at the next meeting on 18 September, up from 14% just a day earlier, according to the CME FedWatch Tool. Overall, markets anticipate 116 bps of rate reductions across the remaining three Fed meetings this year.
Former New York Fed President Bill Dudley commented on Friday that there is a strong case for a 50-bps cut, noting that current rates are 150–200 bps above the neutral rate, where monetary policy is neither restrictive nor accommodative.
‘So the question is: “Why don’t you just get started?”’ he commented.
Crypto analyst Titan of Crypto has pointed out a bullish indicator—the Golden Cross—on Bitcoin's 2-month chart, suggesting a significant price rally could be near. This pattern foreshadowed major gains in the past, as seen in 2021 when Bitcoin surged from $13,000 to over $60,000. The analyst believes the much-anticipated rally could start in October, with Bitcoin's bullish outlook intact as long as it stays above $49,900. Titan of Crypto also predicts Bitcoin could reach $120,000 by 2025 if it breaks above $71,000 in this market cycle.
BTC/USD moved sideways during the Asian and early European trading sessions. Today, traders should focus on the US Michigan Consumer Sentiment Index report due at 2:00 p.m. UTC. Lower-than-expected figures may increase the chances of a 50-bps rate cut at the 18 September Fed meeting and push BTC/USD higher. Otherwise, if the figures are higher than expected, Bitcoin may fall towards $55,600.