Gold Is Near a Three-Week Low as Investors Await Fed's Interest Rate Decision
The gold (XAU) price initially rallied towards 1,996 yesterday, as the U.S. core Consumer Price Index (CPI) aligned with the market expectations. However, XAU/USD lost all the gains later as headline inflation figures slightly increased in November.
Yesterday's report from the U.S. Labour Department failed to encourage gold bulls. Headline inflation rose unexpectedly in November even though core CPI aligned with the market's forecast. Monthly inflation rose due to surging rental costs and higher prices for used cars and trucks. 'Ongoing housing price pressures and their outsized influence on inflation overall tell a large part of the story of why calls for early and rapid Fed monetary policy easing should be viewed with significant scrutiny. The Federal Reserve (Fed) will not cut rates until inflation's drivers are well and truly tamed,' said Kurt Rankin, the senior economist at PNC Financial (NYSE:PNC) in Pittsburgh. Indeed, U.S. inflation hasn't declined as fast as many expected, remaining above the Fed's official target. As a result, the probability of the Fed starting to cut rates in Q1 has dropped to 43%, according to the CME FedWatch Tool.
XAU/USD was declining slightly in the Asian and early European sessions. Today's key event will be the Fed's interest rate decision at 7:00 p.m. UTC. The Fed is almost guaranteed to leave the base rate steady at 5.25–5.50% range. However, traders should examine the Fed's post-meeting statement for any changes in the hawkish regulator's tone. Also, the Fed will release its economic projections, which may shed more light on the future path of interest rates. Finally, Fed Chair Jerome Powell will speak at the press conference at 7:30 p.m. UTC.
'Gold will be stuck between $2,050 on the upside and $1,950 on the downside. Weak economic data and geopolitical tension could boost prices,' said Phillip Streible, the chief market strategist at Blue Line Futures.
Heraeus Metals said in its 2024 outlook:
'If a recession does occur, the dollar could weaken and that would help to propel the gold price to new highs'
GBP/USD Drops as GDP Numbers Indicate the U.K. Economy Has Shrunk
Yesterday's trading session was quite volatile for the British pound (GBP), but the pair finished the day essentially unchanged.
The U.K. employment report and the U.S. inflation report caused yesterday's increased volatility. The U.K. labor market data was relatively optimistic as the claimant count rose only slightly and wage growth remained solid, meaning the Bank of England (BoE) may not be ready to consider cutting the base rate. Meanwhile, the U.S. headline inflation rose unexpectedly in November, further lowering the chances of the Federal Reserve (Fed) reducing the interest rate in Q1 2024.
GBP/USD dropped sharply during the early European session as the Gross Domestic Product (GDP) report showed Britain's economy shrank in October. The trade deficit reached 17 billion British pounds, while the annual growth in industrial production slowed to 0.4%. The report surprised the market, and GBP/USD quickly dropped below the important 1.25400 level. The data indicates that the U.K. might be in a recession, so the BoE may have to start cutting interest rates. 'That may nudge the Bank of England a little closer to cutting interest rates, although when leaving rates at 5.25% tomorrow the Bank will probably push back against the idea of near-term rate cuts,' said Paul Dales, the chief U.K. economist at Capital Economics.
The technical bias for GBP/USD remains bearish as the pair trades below 1.25400, the important intraday level. Traders should watch tomorrow's BoE interest rate decision at 12:00 p.m. UTC. The central bank will likely leave the rates unchanged, but a shift towards a less hawkish stance is likely after today's disappointing GDP figures.