Gold Hits Record Highs on Expectations of Rate Cuts From Major Banks
Gold (XAU/USD) reached record highs following expectations of rate cuts from the major banks.
Gold climbed towards approximately $2,685 per ounce on Thursday as a dovish outlook from major central banks and slightly lower bond yields boosted demand for non-yielding bullion. The Federal Reserve (Fed) is expected to deliver rate cuts in its two remaining decisions this year, with a 25-basis-point (bps) reduction in November becoming increasingly probable. Meanwhile, the European Central Bank (ECB) is anticipated to cut rates at today's meeting, and declining inflation in the U.K. signals a potential rate cut next month. Additionally, several major Asian central banks have recently lowered their rates.
Meanwhile, the US Dollar Index (USD) remains strong, hovering near its highest level since early August, as markets increasingly anticipate the Fed implementing only modest interest rate cuts this year. This, coupled with positive risk sentiment, discourages traders from making new bullish bets on safe-haven gold, limiting further gains. Traders now focus on the upcoming US macroeconomic data to get more information about short-term trading opportunities.
XAU/USD rose during the Asian trading session. Today, traders should brace for heightened volatility as many key economic events come out. First, the ECB interest rate decision is due at 12:15 p.m. UTC and the ECB press conference at 12:45 p.m. UTC. These events could spark additional movement in XAU/USD, especially if there are hints of further monetary easing. Following that, US Retail Sales and Jobless Claims reports will be released at 12:30 p.m. UTC, potentially affecting all USD pairs, including XAU/USD. Strong retail sales data could boost the greenback and push XAU/USD lower, while weaker-than-expected figures might support a bullish trend in gold.
Economic Worries and Rate Cut Prospects Weigh on the Euro
The euro (EUR/USD) lost 0.27% against the US dollar (USD) on Wednesday as the greenback continued to rise in a very strong bullish trend.
The market has essentially ruled out a substantial interest rate cut from the Federal Reserve (Fed) at its next policy meeting and started to price in a potential election victory by former President Donald Trump. Amo Sahota, executive director at FX consulting firm Klarity FX, pointed out that several major central banks are expected to undertake bigger rate cuts than the Fed because their economies are slowing much quicker than the US one. These expectations have provided support for the US dollar.
Meanwhile, the European Central Bank's (ECB) latest report on the financial statement of the Eurosystem revealed that the regulator's balance sheet increased by 3 billion euros. This is a bearish signal for the euro and indicates that the ECB is worried about the eurozone economy. In fact, ECB President Christine Lagarde said yesterday that the central bank is beginning to observe signs of deterioration in the labour market. Other officials have also sounded dovish lately and spoken about the need to reduce rates further.
EUR/USD was falling during the Asian and early European trading sessions. Today, key events are the ECB's rate decision at 12:15 p.m. UTC and the following press conference at 12:45 p.m. UTC. Both events are expected to impact the market significantly and may provoke sharp moves in EUR pairs. Markets expect the ECB to cut its deposit and refinancing rates by 25 basis points (bps) each. However, the decision itself typically doesn't cause significant market fluctuations. The additional information revealed in the Monetary Policy Statement and the subsequent press conference often drives substantial market movements. EUR/USD is in a downtrend, so traders may look for selling opportunities. Key levels to watch are support at 1.08450 and the resistance at 1.08740.
Canadian Dollar Declines After Long Growth
On Wednesday, USD/CAD declined and lost 0.17% as investors as the market had already priced in the potential monetary policy easing from the Bank of Canada (BOC). Also, traders evaluated the potential economic implications of the upcoming US presidential election.
Following the release of weaker-than-expected domestic inflation data on Tuesday, the likelihood of a 50-basis-point (bps) rate reduction by the BOC increased to approximately 80%, up from 50%. This would be the first outsized rate cut exceeding 25 bps since the central bank initiated its easing measures in June. Erik Nelson, a macro strategist with Wells Fargo Securities in London, stated: ‘I believe we have likely witnessed the majority of the decline in the Canadian dollar (CAD). A 50-bps reduction is already fully reflected in the market's pricing for next week’.
Also, the results of the US presidential election may affect USD/CAD. Trump's plan to implement tax cuts, loosen financial regulations, and increase tariffs is seen as positive for the US dollar. However, while Trump's plan to increase tariffs may cause disruptions in global trade, the US, Mexico, and Canada Agreement (USMCA)—the free trade agreement between the three nations—and the relaxation of US fiscal policy could protect Canada's economy. Nelson stated that he doesn't foresee USMCA being terminated.
USD/CAD has been rising during Asian and early European trading hours. Today, US Retail Sales and Jobless Claims reports due at 12:30 UTC will add volatility to the pair. Stronger-than-expected sales data and lower jobless claims figures will likely support the greenback, pushing USD/CAD higher.