Gold Hits a 10-Day High on the Dovish Fed Statements
The gold (XAU) price increased by 0.75% on Thursday as traders continued to digest a shift in the Federal Reserve's (Fed) monetary policy outlook toward a more dovish stance.
Yesterday's U.S. macroeconomic reports came out stronger than expected but failed to boost the US dollar as Treasury yields continued to decline. 'Fed's dovish pivot gave a green light for markets to price in a more aggressive Fed cutting cycle on the horizon, and we expect that the market will run with it,' said Daniel Ghali, the commodity strategist at TD Securities. However, some investors believe there is 'too much faith in the Fed' and a rally in gold is at risk of a major correction if U.S. macroeconomic statistics continue to reveal a healthy economy.
XAU/USD was relatively flat in the Asian and early European trading sessions. Today, investors focus on the U.S. flash Purchasing Managers' Index (PMI) report at 2:45 p.m. UTC. Higher-than-expected figures might trigger a minor correction in gold. However, the bullish trend may strengthen if the PMI numbers are below the market consensus. 'Spot gold may drop into a range of $2,010–2,019 per ounce, as its rise from $1,972.78, or the first part of this rise, has completed,' said Reuter analyst Wang Tao.
USD/JPY is at a 4-Month Low in Anticipation of the Hawkish BOJ Monetary Policy
The Japanese yen (JPY) gained 0.71% on Thursday as bullish bets on the US dollar boosted after the Federal Reserve (Fed) indicated upcoming interest rate cuts.
USD/JPY has dropped to a 4-month low as traders price in 150-basis-point rate cuts by December 2024. 'The Fed was very dovish. The strong consensus was for a balanced tone by Powell. Instead, Powell doubled down, with a very dovish tone,' said Athanasios Vamvakidis, the global head of G10 FX strategy at BofA Global Research. Growing speculation that the Bank of Japan (BOJ) may be preparing to end its controversial, decade-long policy of negative interest rates is putting additional bullish pressure on the Japanese yen. Indeed, over 20% of economists in the latest Reuters poll said that BOJ will begin to unwind its ultra-loose monetary policy in January. The view is supported by a relatively strong Japanese Purchasing Managers' Index report, which showed growing business activity in December.
USD/JPY was falling slightly in the Asian and early European sessions. The most important event today is the U.S. flash PMI report at 2:45 p.m. UTC. Higher-than-expected figures might boost the US dollar slightly but are unlikely to reverse the bearish trend in USD/JPY. However, if the numbers come out lower than the forecast, the bearish trend will continue. The technical bias for the pair is also bearish as USD/JPY trades below the important intraday level of 144.70.