Gold Plunged Due to Unexpectedly High US Inflation Data
The gold (XAU) price dropped more than 1% following the release of higher-than-expected US Consumer Price Index (CPI) figures. However, traders bought the dips, so XAU/USD partly recovered.
Despite the anticipation of a shift in the Federal Reserve's (Fed) tone towards a more hawkish stance, gold prices have attracted inflows due to ongoing geopolitical concerns. The US dollar strengthened noticeably, influenced by a significant rise in US Treasury bond yields after an unexpectedly strong inflation report, which exerted downward pressure on XAU/USD. According to the US Bureau of Labor Statistics, the headline Consumer Price Index (CPI) rose by 0.4% in March, resulting in a 3.5% increase year-on-year, exceeding market expectations. Moreover, the March FOMC meeting minutes indicated that Fed officials don't plan to cut interest rates until they are confident that inflation is consistently moving towards their 2% target.
The market is now pricing in the first rate cut in September instead of June, reducing the forecast to fewer than 2 rate cuts of 25 basis points this year. Consequently, the US dollar surged to a new high in 2024. Meanwhile, unresolved ceasefire discussions between Israel and Hamas, along with fears of potential retaliation from Iran over an alleged Israeli strike, are pushing XAU/USD higher.
XAU/USD was increasing during the Asian and early European trading sessions. The market awaits the US Producer Price Index (PPI) report at 12:30 p.m. UTC today. Higher-than-expected figures should exert bearish pressure on the pair, while lower-than-expected results may encourage XAU/USD bulls. The short-term technical bias remains bullish for now as the pair moves above the pivotal 2,320 level.
Euro traders await today's ECB interest rate decision
EUR/USD declined by 1.1%, towards 1.0739, due to high US inflation data, which increased expectations for more aggressive monetary policy actions by the Federal Reserve (Fed).
On Wednesday, the US Bureau of Labor Statistics reported that the annual Consumer Price Index (CPI) rose from February's 3.2% towards 3.5% in March, surpassing the expected 3.4%. The core CPI, excluding food and energy, reached 3.8% year-on-year. Both CPI figures rose by 0.4% monthly, above the forecasted 0.3%. This led to a surge in US Treasury yields and a decrease in the likelihood of a rate cut by the Fed in June to just over 20%, strengthening the US dollar.
Moreover, the minutes from the FOMC meeting highlighted prevailing uncertainty among members about the interest rate trajectory. Recent data hasn't shown that inflation is steadily slowing and moving towards the 2% target. Given the high inflation and a strong labor market, officials might adjust their monetary policy stance and become more hawkish until economic data prove that rate cuts are possible.
EUR/USD was moving sideways in the Asian session. Today, the most important events are the ECB Interest Rate Decision at 12:15 p.m. UTC and the ECB press conference at 12:45 p.m. UTC, which could offer insights into the ECB's plans for interest rates. The market believes the regulator will keep the interest rate unchanged at this meeting. However, recent economic data from the eurozone revealed that inflation is slowing. The ECB is expected to be one of the first major central banks to begin easing monetary policy, with the first rate cut expected in June. Thus, looking at the statement and officials' comments after the meeting is important. Statements supporting a dovish stance may strengthen downward pressure on the euro in the short term. However, indications that the ECB is considering keeping the base rate high for longer will likely boost EUR/USD substantially.
Hot US inflation data weakens the British pound
GBP/USD stays under pressure near 1.2540, influenced by a stronger US dollar due to higher-than-expected US Consumer Price Index (CPI) figures.
March CPI data confirmed persistent inflation, shifting market expectations for the first rate cut by the Federal Reserve (Fed) from June to September. This shift reflects growing caution over the pace of monetary policy easing amid ongoing price pressures, according to the Fed Funds Futures market via the CME FedWatch Tool. In March, US inflation increased by 0.4% month-on-month, leading to an annual inflation rate of 3.5%. The Core CPI, excluding food and energy, also rose by 0.4%, reaching an annual increase of 3.8%. CPI figures exceeded forecasts, triggering a strong reaction in the Forex market.
The performance of the British pound will depend on the upcoming economic data from the U.K., including the monthly Gross Domestic Product (GDP) and Industrial Production figures for February, set for release on Friday. The market suggests that the Bank of England (BOE) may cut interest rates at its next meeting in June. Any dovish remarks from BOE officials could start a bearish trend in GBP/USD.
GBP/USD rose slightly in the Asian and early European trading sessions ahead of the US Producer Price Index (PPI) report, set for release today at 12:30 p.m. UTC. Figures exceeding expectations could prompt the Fed to maintain elevated interest rates for longer, potentially bolstering the US dollar and contributing to a further decline in GBP/USD. Conversely, if the PPI data are lower than expected, the pair may gain bullish momentum, potentially reaching 1.26000.