Gold Trades Near Three-Week Highs Ahead of the Critical PCE Report
The gold (XAU) price increased 0.80% on Thursday due to a drop in U.S Treasury yields as investors continued to bet that the Federal Reserve (Fed) would cut interest rates in March 2024.
Yesterday, better-than-expected Jobless Claims data was offset by worse-than-expected Gross Domestic Product (GDP) data, which put additional bullish pressure on the gold price. Right now, the market assumes that U.S. interest rates have peaked. As a result, any macroeconomic reports that indicate weakening in the U.S. economy are increasing the chances of a rate cut from the Fed. In turn, the price of gold goes up because the appeal of safe-haven, non-yielding assets increases when interest rates are expected to fall. Indeed, the market currently prices in an 83% chance of a rate cut in Q1 2024. 'Gold will continue to maintain price levels above 2,000 USD, and these expectations we have of lowering inflationary pressures will continue to foster the sideways to higher movement in gold', said David Meger, director of metals trading at High Ridge Futures.
XAU/USD rose above the 2,050 level during the Asian session but then lost some of the previous gains during the early European session. Today, all eyes will be on the U.S. Personal Consumption Expenditure (PCE) data, due at 1:30 pm UTC. PCE Price Index is the Fed's preferred measure of inflation, so the data will significantly impact investors' interest rate expectations because it might change the path of the American monetary policy in the mid-term. If the PCE Price Index comes out lower than expected, the U.S. dollar will likely drop further, while XAU/USD will rise—probably above the 2,055 level. Conversely, higher-than-expected results may have a substantial bearish impact on XAU/USD—potentially pushing the pair below 2,030. 'Spot gold may break resistance at 2,053 USD per ounce and a rise into the 2,062–2,073 USD range', said Reuters analyst Wang Tao.
EUR/USD Trades Above 1.10000 as the Market Eyes the PCE Report
The euro gained 0.64% on Thursday after the US dollar declined due to a worse-than-expected GDP report.
EUR/USD has been in a well-defined bullish trend since mid-October, and the pair has now approached a four-month high. Expectations that the Federal Reserve (Fed) would pursue a more dovish or less hawkish monetary policy in 2024 drove the rally in EUR/USD. Currently, however, investors' expectations of interest rates are more or less balanced. In fact, there is no clear divergence in monetary policy between the Fed and the European Central Bank (ECB) that would explicitly favour the euro vs the US dollar. Interest rates swap market data indicates that traders currently price in 150-basis points (bps) worth of rate cuts from the Fed by the end of 2024 and around the same amount of cuts from the ECB over the same period. EUR/USD traders now require an additional fundamental impetus that might define the next big move either to the upside or the downside.
EUR/USD was falling slightly during the Asian and early European sessions. Today, the release of the U.S. Personal Consumption Expenditure (PCE) report may trigger a lot of volatility in all USD pairs. The Fed regards the PCE Price Index as the primary measure of inflation. Therefore, if the report shows higher-than-expected figures, EUR/USD may plunge sharply—possibly below 1.09400. Conversely, lower-than-expected results may extend the bullish trend in EUR/USD, pushing it above 1.10500.