Weakening US Dollar and Safe-Haven Demand Keep Gold Price Elevated
The gold (XAU) price rose by 0.57% on Friday as the US dollar continued to weaken after a strong 2-month rally.
XAU/USD had its first weekly gain in February due to a declining US Dollar Index (DXY) and solid safe-haven demand induced by escalating tensions in the Middle East. Although US interest rates remain high and the prospects of rate cuts have been pushed later towards the summer, the gold price remains elevated due to heavy buying from central banks and strong risk-off flows. However, there is clear bearish pressure on all precious metals, so any rallies in gold may be hard to sustain. Firstly, comments from Federal Reserve (Fed) officials have been hawkish lately, reducing investors' expectations of US interest rate cuts. Indeed, the market is currently pricing in only a 20% chance of a 25-basis point rate cut in May. Secondly, rising demand for Bitcoin exchange-traded funds (ETFs) is prompting investors to swap out holdings in gold-backed ETFs.
XAU/USD was falling slightly during the Asian and early European trading sessions. Today, the formal macroeconomic calendar is uneventful, so volatility may remain low throughout the day. Still, the US New Home Sales data release at 3:00 p.m. UTC may trigger some action during the American trading session. Spot gold may test support at 2,025, a break below which could be followed by a drop towards 2,015, said Reuters analyst Wang Tao.
EUR/USD Continues to Rise, But the Momentum Has Weakened
The euro (EUR) was essentially flat on Friday, even though US dollar bulls closed their long positions after an almost 2-month rally.
The general decline in EUR/USD, which began in December last year, was primarily built on expectations that the Federal Reserve (Fed) would begin cutting rates later than previously expected. Now, traders have already pushed back their rate cut expectations substantially: the probability of a 25-basis point (bps) rate reduction in May is just under 20%. Furthermore, most policymakers at the last FOMC meeting expressed hawkish sentiment. The US macroeconomic data will have to deteriorate quite noticeably for the Fed doves to be invigorated. However, some traders are waiting for the economic data to start worsening. 'I think starting with the February jobs data, which is due on 8 March, we're going to begin seeing a series of weaker US economic data,' said Marc Chandler, the chief market strategist at Bannockburn Global Forex.
Meanwhile, European Central Bank (ECB) officials are not willing to cut rates either. Joachim Nagel, the Bundesbank President, said that eurozone inflation remains stubbornly high, so the ECB should resist the temptation to cut the base rate too early. Isabel Schnabel, another influential member of the ECB Governing Council, also called for extra caution on Friday. Overall, investors' interest rate expectations for the Fed and the ECB are more or less balanced, not favoring any particular currency. Therefore, the EUR/USD exchange rate will depend highly on upcoming macroeconomic data releases.
EUR/USD was essentially unchanged during the Asian and early European trading sessions. No significant events are scheduled on the economic calendar today, except for the US New Home Sales data at 3:00 p.m. UTC, which might trigger some volatility. The short-term technical bias remains bullish as EUR/USD trades above the important intraday level of 1.08000.
BTC/USD Remains Within a Range, While Ethereum Rises
The Bitcoin (BTC) price remains within a tight range as Ethereum (ETH) surges.
Last week, BTC traded within the 51,000–53,000 range. On 24 February, the asset broke below 51,000 but quickly recovered. The second-largest cryptocurrency by market capitalization—ETH—surpassed 3,100. Overall, Bitcoin's dominance has decreased from 54.40% to 52.30% since 12 February. The decline suggests that while Bitcoin is trading within a narrow range, other cryptocurrencies are gaining in market capitalization.
In a Fox News town hall event in Greenville on Tuesday, former US President Donald Trump and US Senator Tim Scott discussed Bitcoin and the forthcoming presidential election. 'A lot of people are doing it, and frankly, it has taken a life of its own. You probably have to do some regulation, as you know, but many people are embracing it. And more and more I'm seeing people wanting to pay Bitcoin, and you're seeing something that's interesting, so I can live with it one way or the other,' the former President said. While serving as the US President, Trump was much more critical of Bitcoin and other cryptocurrencies. However, since leaving the government, he has introduced three non-fungible token (NFT) collections of his own.
BTC/USD remained relatively flat during the Asian and early European sessions. This week, the main event for BTC traders is the release of the US Personal Consumption Expenditure Price Index at 1:30 p.m. UTC on 29 February. The report may trigger volatility in BTC/USD. Breaking through the 51,000–53,000 range will outline the further trend.