Gold (XAU) climbed by 2% on Friday, reaching an all-time high. Strong demand for safe-haven assets fueled the rally as markets assessed the Federal Reserve's monetary policy outlook.
Upbeat US economic data last week prompted markets to lean towards a 25-basis-point (bps) rate cut by the Fed in September rather than a 50-bps reduction.
However, with inflation nearing the Fed's 2% target, markets still anticipate a total of 100 bps of cuts over the three meetings until the year's end. Investors are looking ahead to Fed Chair Jerome Powell's upcoming speech and the latest FOMC minutes later this week for additional clarity on the US monetary policy path.
The geopolitical uncertainty of Gaza and the Russia-Ukraine war will likely support XAU/USD prices in the medium term.
XAU/USD moved sideways during the Asian and early European trading sessions. Today, the economic calendar is relatively light, so XAU/USD may continue its upward movement.
Gold's long-term bullish trend remains supported by several factors: persistent global economic uncertainty, geopolitical tensions, inflation hedging, accommodative central bank policies, and a weaker US dollar (USD).
"Spot gold may fall into a range of $2,479 to $2,487 per ounce, following its failure to break resistance at $2,507", said Reuters analyst Wang Tao.
EUR/USD Continues to Rise in Anticipation of Potential US Rate Reductions
On Friday, the euro (EUR) was bullish for the entire trading session, finishing the day with 0.51% gains.
Federal Reserve (Fed) officials Mary Daly and Austen Goolsbee have expressed the possibility of a monetary policy easing in September.
The minutes from the latest policy meeting, due this Wednesday at 6:00 p.m. UTC, are anticipated to support this optimistic outlook further. Fed Chair Jerome Powell will deliver a speech in Jackson Hole on Friday, and investors anticipate he will acknowledge the necessity of an interest rate reduction.
It may be premature to declare victory, given the cautious nature of central bank officials' statements, the concern about inflation that has dominated policy discussions has largely dissipated, according to Christian Keller, an economist at Barclays. Inflation may still be higher than the 2% target, but it's gradually slowing.
According to the CME FedWatch Tool, there is a 71.5% probability of a 25-basis-point (bps) rate reduction in September and a 28.5% probability of a 50-bps cut. Overall, futures indicate over 90 bps of easing by the end of the year.
"Markets will be closely monitoring what Powell has to say at the end of this week. I believe it will be an excellent opportunity for Powell to either confirm or challenge market expectations", said Carol Kong, director of international economics and currency strategist at Commonwealth Bank of Australia. She added, "I anticipate he will at least approve a rate reduction at the September meeting. In fact, I believe he will try to maintain flexibility because we have more data available before the next meeting".
EUR/USD continued to trade bullish during Asian and early European trading sessions today, rising towards an important 1.05000 resistance level. No important releases are scheduled today that can affect the EUR/USD, so the pair could continue to move within the established trend.
GBP Rises on Strong U.K. Data and Fed's Dovish Messages
The British pound (GBP) surged by 0.72% against the US dollar (USD) on Friday as the greenback weakened on growing expectations for an interest rate cut from the Federal Reserve (Fed) in September.
A higher-than-expected Friday's US Consumer Sentiment Index data failed to invigorate USD bulls. On the contrary, the US Dollar Index (DXY) plunged below the critical 102.500 level on the back of disappointing US housing numbers, while the Fed speakers continued sending dovish messages.
Austan Goolsbee, head of the Chicago Fed, expressed concern about maintaining tight monetary policy for too long, arguing that current economic conditions don't indicate overheating.
At the same time, Mary Daly, San Francisco Fed President, said it was time to consider adjusting borrowing costs from their current 5.25–5.5% range. The market has started to price in a higher probability of more rate cuts ahead, bringing the DXY down.
Interest rate swap market data currently implies as much as 120 basis points (bps) worth of rate cuts by the Fed by February 2025. Conversely, the Bank of England (BOE) is expected to deliver less than 90 bps of rate cuts over the same period.
Indeed, the U.K. macro statistics have been coming out slightly better than expected lately. Industrial production rose by 0.8% in June, above the expected 0.1% rise, while the unemployment rate dropped to just 4.2%, a five-month low.
GBP/USD continued to rise during the Asian and early European trading sessions. The weaker US dollar seems to result from investors' increased anticipation of a dovish tone at the FOMC's July policy meeting, which minutes will be published on Wednesday at 6:00 p.m. UTC. Additionally, traders expect Jerome Powell, the Fed Chair, to deliver a dovish speech at Jackson Hole this Friday.
Thus, GBP/USD will likely remain under bullish pressure as long as the pair continues to move above the 1.29400 level.