Gold Jumps to a One-Week High as the Fed Indicates Upcoming Rate Cuts in 2024
The gold (XAU) price rose by over 2% on Wednesday after the U.S. Federal Reserve (Fed) indicated that interest rate cuts will begin in 2024.
The Fed's acknowledgment of inflationary pressures continuing to come down has raised interest rate cut expectations, which is seeing a dramatic drop in yields and dollar, and a subsequent rise in gold and silver. We believe the current upward move in gold is a sustained rally,' said David Meger, the director of metals trading at High Ridge Futures. Now, the probability of a first-rate cut in March has jumped to 92%, according to the CME FedWatch Tool. The market now expects the U.S. base rate to reach 3.75–4.00% by December next year. XAU/USD is trading near a one-week high, facing relatively strong resistance in the 2,040 area.
Gold continued to rise during the Asian and early European sessions. Today, policy rate decisions by the Bank of England at 12:00 p.m. UTC and the European Central Bank at 1:15 p.m. UTC may influence the XAU/USD exchange rate. Still, today's main event is the publication of the U.S. retail sales report and Jobless Claims at 1:30 p.m. UTC. The market has priced in an almost 100% probability of a rate cut in Q1 2024. Therefore, XAU/USD is now very sensitive to data that might contradict the current stance on the U.S. monetary policy. Higher-than-expected retail sales numbers or lower-than-expected rises in unemployment claims figures may trigger a sharp sell-off in XAU/USD. However, the data will have to outperform the forecast to encourage gold bulls. 'Spot gold may extend its gains towards $2,054 per ounce, as it has briefly pierced above the resistance at $2,034,' said Reuters analyst Wang Tao.
The Euro Rallies on Dovish Fed, But Investors Await the ECB Interest Decision
The euro (EUR) gained 0.75% on Wednesday after the U.S. Federal Reserve (Fed) published its latest economic projections, revealing the U.S. interest rate will be decreased in 2024.
17 of 19 Fed officials pointed out that the U.S. base rate will be decreased in 2024 as inflation continues to ease. 'The Fed turned decisively dovish this afternoon, waving a red flag in front of market bulls hoping for an easing in policy,' said Karl Schamotta, the chief market strategist at Corpay. The market's interest rate expectations took a U-turn. Before the Fed's meeting, the probability of a rate cut in March was around 40% and jumped above 90% after the Fed projections came out. However, some market analysts say investors are too eager to believe in the US dollar's weakness. 'The Powell pause may last until the May meeting. The critical question is whether the Fed will be cutting because it can or because it has to,' said Brian Jacobsen, the chief economist at Annex Wealth Management in Menomonee Falls.
EUR/USD continued to rise during the Asian and early European trading sessions, reaching a two-week high. The focus is now on the European Central Bank's (ECB) interest rate decision at 1:15 p.m. UTC. The market expects the rate to remain unchanged at 4.5%. However, key details may be revealed in the post-meeting statement and the following press conference at 1:45 p.m. UTC. 'We expect the ECB to acknowledge that inflation has declined more rapidly than expected but to be coy about declaring victory prematurely,' Deutsche Bank economists said. If the ECB takes a less dovish stance than the Fed, EUR/USD may continue to rally. The key levels to watch for the bulls are 1.09150, 1.0940, and 1.0970. Whereas the bears will target 1.09000, 1.08550, and 1.08300.