Gold Sets a New All-Time High on Dovish Powell Comments
The gold (XAU) price increased by 0.84% on Wednesday, setting a new all-time high after Jerome Powell, the Federal Reserve (Fed) Chairman, reiterated that the regulator will lower interest rates this year despite a still-tight labour market and higher-than-expected inflation figures.
Powell specifically mentioned that a lower interest rate would be appropriate at some point this year, adding that 'recent data don't materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labour market, and inflation moving down towards 2% on a sometimes bumpy path.' The market interpreted these comments as dovish. Refinitiv, a global provider of financial market data, estimates that the probability of 3 interest rate cuts in 2024 has increased from 90% to 95% following Powell's speech.
"Powell's customary cautious approach doesn't worry gold bulls. I think bulls are aiming for 2,300, and more "tourists" are getting involved in the trade," said Tai Wong, a New York-based independent metals trader.
Indeed, technical indicators suggest the gold market is becoming overbought, with the weekly Relative Strength Index at a 4-year high. Meanwhile, the Commodity Futures Trading Commission reports that long positions are overcrowded, with large speculators holding as many as 157,700 net-long contracts in COMEX gold—the largest amount in 2 years. Thus, some significant impulse will likely trigger a short-term downward correction in gold.
XAU/USD was essentially flat in the Asian and early European trading sessions. Today, the economic calendar is relatively light, but the US Jobless Claims report's release at 12:30 p.m. UTC could still trigger some above-normal volatility in all USD pairs. If jobless claims figures rise more than expected, it will indicate growing weaknesses in the job market, thus strengthening market confidence in the 3 rate cuts by the Fed, which should support the price of gold. Conversely, a smaller-than-expected increase in unemployment claims numbers may suggest a tight labour market, supporting the view that interest rate cuts won't be substantial. In this case, XAU/USD will likely correct downwards. Key levels to watch are 2,315–2,320 and 2,280–2,277.
EUR/USD Rises Despite Slowing Eurozone Inflation
The euro (EUR) gained 0.62% on Wednesday as macro statistics from the US came out weaker than expected. Moreover, Jerome Powell, the Federal Reserve (Fed) Chairman, indicated that 3 rate cuts are still possible this year, weakening the US dollar.
According to Reuters, the US services industry growth slowed in March, while prices paid by businesses for inputs dropped to a 4-year low, increasing the chances of an interest rate cut. On Wednesday, the Institute for Supply Management (ISM) reported that its non-manufacturing Purchasing Managers' Index (PMI) figures fell from 52.6 in February to 51.4 in March, instead of the expected rise to 52.7. The PMI report disappointed investors and weakened the US dollar. Furthermore, the Fed Chairman yesterday confirmed that the US central bank is on track to deliver 3 interest rate cuts in 2024, which gave an additional boost to the euro.
Still, the overall divergence in monetary policy expectations between the Fed and the European Central Bank (ECB) continues to favour the greenback. Refinitiv, a global provider of financial market data, calculates that the market is currently pricing in roughly 90 basis points (bps) worth of rate cuts by the ECB and just over 70 bps of cuts by the Fed in 2024. Indeed, some ECB officials have recently stated that the European regulator may begin reducing the base rate before the Fed does and deliver 100 bps worth of cuts this year. Yesterday, Eurostat reported that consumer price growth in the eurozone unexpectedly slowed to 2.4% in March, strengthening expectations that the ECB will soon start lowering borrowing costs.
EUR/USD was rising in the Asian and early European trading sessions. Today, the economic calendar is relatively light, but the US Jobless Claims report's release at 12:30 UTC could potentially trigger increased volatility in all USD pairs. If jobless claims figures rise more than expected, it will support expectations that the Fed will deliver 3 rate cuts this year, supporting the EUR/USD exchange rate. Conversely, a smaller-than-expected increase in unemployment claims may be interpreted as a sign of a tight labour market, providing more room for higher US interest rates. In this case, EUR/USD will likely correct downwards. Key levels to watch are 1.08500–1.08600 and 1.08100–1.08050.
Bitcoin Holds Steady as the Market Braces for Halving Event
Bitcoin's (BTC) trading activity remained mostly flat on Wednesday as market participants anticipate the upcoming halving event.
The periodic payment exchanges between short and long traders in Bitcoin futures—known as funding rates—could hint at a possible future price adjustment in Bitcoin. CryptoQuant, an on-chain analytics firm, shared an analysis on the X social media platform, indicating that prolonged positive funding rates in Bitcoin's futures point to a robust bullish sentiment among traders. Futures funding rates are recurring payments between traders, reflecting the difference between perpetual futures contracts' prices and BTC's spot price. When futures prices are higher than spot prices, holders of long positions pay those with short ones, and vice versa. This mechanism helps to align futures prices with spot prices over time.
Crypto SunMoon, an analyst at CryptoQuant, points out that while there's strong optimism in the market, such sentiment has historically led to price corrections. CryptoQuant analyst Maartunn noted an increase in the Coinbase (NASDAQ:COIN) Premium—the price gap between Bitcoin on Coinbase and global exchanges—interpreting it as an indicator of active Bitcoin purchases by US institutions.
BTC/USD declined slightly during the Asian and early European trading session. BTC/USD might fluctuate within 65,000–67,000 today as the crypto market enters a consolidation phase ahead of the upcoming halving event. This event occurs approximately every 4 years, and the reward for mining Bitcoin transactions will be halved, making Bitcoin rewards rarer and potentially increasing their value due to decreased supply and historic increases in demand. The next halving will happen around 18 April and will reduce the mining reward further.