The Gold Price Consolidates Ahead of the Fed's Decision
The gold (XAU) price rose by 0.66% on Monday as tensions in the Middle East increased the demand for safe-haven assets.
It appears that geopolitical uncertainty is the only factor pushing XAU/USD higher. Conversely, changing interest rate expectations exert downward pressure on XAU/USD. Investors currently price in less than a 47% chance of a 25 basis point rate cut from the Federal Reserve (Fed) in March. About a week ago, the probability was close to 60%. If interest rates remain higher for longer, gold should lose its appeal since the asset doesn't yield any passive income. Thus, the upcoming Fed's interest rate decision on 31 January is crucial—it might provide clues on future changes in US monetary policy.
"This FOMC meeting will show some guidance on when the first interest rate cut might come and whether the Fed will lean dovish or hawkish on its monetary policy," said Jim Wyckoff, a senior analyst at Kitco Metals.
XAU/USD was rising during the Asian and early European trading session. Today, traders will probably refrain from opening large positions in the metals market as the Fed's decision looms. Two important US macroeconomic reports will come out today at 3:00 p.m. UTC: the Conference Board's Consumer Confidence report and JOLTS Job Opening data from the Bureau of Labour Statistics. Both reports will likely trigger above-normal volatility in the market. Any data revealing a strong jobs market and optimistic consumer sentiment tends to have a bearish impact on gold as it raises the probability of interest rates staying high for longer. Worse-than-expected numbers will have a bullish impact on gold, potentially pushing the price towards 2,043.
"Spot gold may retest support at 2,019 USD per ounce. A break below could open the way towards 2,010 USD," said Wang Tao, a Reuters analyst.
EUR/USD Continues to Fall as Investors Anticipate Weak Eurozone GDP Figures
The euro (EUR) lost 0.18% on Monday as the US Dollar Index continued to rise.
On Monday, eurozone government bond yields dropped as markets priced in the first 25 basis point (bps) rate cut by the European Central Bank (ECB) in April. ECB policymakers said that the central bank's next move would be cutting the base rate but didn't indicate the exact timing. ECB hawk Peter Kazimir said the rate cut would more likely come in June rather than April. Investors expect roughly 140 bps worth of rate cuts in 2024 and anticipate similar reductions by the Federal Reserve (Fed) over the same period. Therefore, monetary policy expectations are more or less balanced, and there is no clear divergence that might boost one currency or another. If eurozone reports show soft economic growth and inflation figures, this could increase expectations for the ECB's monetary policy easing.
EUR/USD was falling in the Asian and early European trading sessions. Today, investors will focus on the preliminary eurozone's Gross Domestic Product (GDP) Growth report for Q4 at 10:00 a.m. UTC. However, the most critical GDP data from Germany will be released at 9:00 a.m. UTC. The market expects the figures to show a mild decline in economic activity. If the figures are weaker than expected, the bearish trend in EUR/USD might accelerate. In addition, EUR/USD traders will likely see additional volatility due to the release of important macrostatistics from the US: the Consumer Confidence and JOLTS Job Opening reports, both at 3:00 p.m. UTC. Weaker-than-expected figures might support EUR/USD. However, the pair might drop below 1.08000 if US data exceeds the forecast.
The Market Doesn't Expect Rate Hikes From the RBA at the Next Policy Meeting
On Monday, the Australian dollar (AUD) rose by 0.56% as US Treasury yields dropped.
Australian retail sales fell by 2.7% in December, reversing a November rise caused by Black Friday sales, with annual spending growth slowing to pandemic-era lows. Sluggishness in retail sales shows the pressure on household budgets, prompting the market to believe the Reserve Bank of Australia (RBA) won't increase the base rate in next week's policy meeting. Still, the Australian dollar and bond futures remained stable. As the interest rate in Australia is at a 12-year high and consumers are cutting back on non-essential purchases, pressure on household budgets may ease later this year when taxes will be decreased. Sean Langcake, the lead macroeconomic forecaster at Oxford Economics Australia, said retail volumes probably remained stagnant throughout Q4 last year, hardly impacting economic growth. He mentioned that 'tighter policy settings are working to restrain demand, and growth in retail sales over the first half of the year is likely to be quite patchy.'
AUD/USD rose during the Asian trading window but started declining in the European session's early hours. Focus is now on the Australian Inflation Rate report that will be released on 31 January at 12:30 a.m. UTC. Economists predict headline consumer inflation to decline towards a 2-year low of 4.3%, suggesting that additional rate hikes may not be necessary. Today's important event is the release of the US JOLTs Job Openings report at 3:00 p.m. UTC. If the figures are higher than expected, AUD/USD may fall below 0.66000. However, if the data is weaker than anticipated, the Australian dollar might continue its local bullish trend.