The Gold Price Remains Elevated, Backed By Continuing Geopolitical Tensions
The gold (XAU) price rose by 0.33% on Tuesday due to growing instability in the Middle East. XAU/USD increased despite the stronger US dollar, which was pushed higher by a better-than-expected Durable Goods Orders report.
Yesterday, Israel recalled its negotiating team from Qatar, ending attempts to negotiate a ceasefire and secure a hostage release deal with Hamas. This development triggered safe-haven buying in gold. At the same time, yesterday's US macroeconomic reports were generally positive, leading to a slight reduction in the chance of an interest rate cut by the Federal Reserve (Fed) in June. Although the Consumer Confidence report was below expectations, the Current Conditions Index remained above the critical 150 mark, indicating strong financial sentiment. Furthermore, the Durable Goods Orders report revealed that demand for long-lasting US manufactured goods increased more than anticipated in February.
Overall, yesterday's US economic data suggests that the economy remains resilient. Consequently, the probability of a 25-basis-point rate cut in June fell below 60%, driving the US Dollar Index higher. However, global geopolitical concerns overshadowed strong US reports, giving bullish momentum to gold.
"Closer to the summer, you're going to see gold go higher just with the expectation of rate cuts unless the Fed changes stance or makes some announcement that they're taking cuts off the table, which I don't see them doing at this point," said Bob Haberkorn, the senior market strategist at RJO Futures.
XAU/USD was falling slightly in the Asian and early European trading sessions. Today's economic calendar is uneventful, so traders await the publication of the US Personal Consumption Expenditure (PCE) Price Index on Friday. Thus, XAU/USD may continue to move sideways with a minor bearish tilt until some event creates a strong impulse.
"The motivating factor for their gold purchases is diversification away from the G7 currencies after these currencies were weaponized in 2022 following the Russia-Ukraine war," said Nitesh Shah, the commodity strategist at WisdomTree.
Meanwhile, the physical demand for gold is weakening. Reuters reported that China's net gold imports via Hong Kong slumped about 48% in February—the lowest since November.
The Euro Moves Lower as the ECB Seems More Dovish Than the Fed
The euro (EUR) weakened slightly on Tuesday, losing some 0.06% after the US reports highlighted that the economy remains resilient.
Although the US consumer confidence remained steady, durable goods orders rose more than expected in February, slightly lowering the probability that a Federal Reserve (Fed) will cut interest rates in June. Meanwhile, the European Central Bank (ECB) officials continue to sound dovish. Yannis Stournaras, the Governor of the Bank of Greece, said that the regulator is considering cutting interest rates in June if inflation develops as projected. He also added that 4 rate cuts this year are reasonable as long as inflation continues to decrease. The main factor that exerts downward pressure on EUR/USD is the divergence in monetary policy expectations between the Fed and the ECB. According to the interest rates swaps market data, investors price in 3 25-basis-point (bps) rate cuts by the Fed and 4 rate reductions by the ECB in 2024. If US economic reports continue to be better than expected, this divergence may widen further, driving EUR/USD down towards 1.07000.
EUR/USD was falling slightly during the Asian and early European trading sessions. Today's macroeconomic calendar is relatively light, so EUR/USD may continue to move sideways within a tight range of 1.07900–1.08600.
GBP Slides as Strong US Durable Goods Orders Report Bolsters the US Dollar
The British pound (GBP) declined as the US dollar rose on Tuesday after strong US economic data was released.
The US Conference Board's Consumer Confidence Index declined slightly in February, dropping to 104.7—just below the expected 104.8. Meanwhile, the US Durable Goods Orders data for February revealed an unexpected rise of 1.4%, differing drastically from January's decline of 6.9%. Following these releases, the US Dollar Index (DXY) rose towards 104.30, while the GBP/USD declined towards 1.26250. The US dollar has been strengthening for almost a quarter, as the possibility of substantial rate cuts by the Federal Reserve (Fed) has been diminishing, supported by robust US economic data and the central bankers' cautious approach to monetary policy.
The GBP/USD remained relatively stable throughout Q1, declining slightly by only 0.8%. Catherine Mann, the Bank of England's (BOE) member, disclosed on Tuesday that she voted to maintain the current interest rate at the last central bank meeting. She shifted from her initial inclination to support more rate hikes, explaining this change by reducing consumer spending. However, she commented that financial markets are overly optimistic regarding the number of anticipated rate reductions by the BOE.
"I think they're pricing in too many cuts," Mann said.
GBP/USD is declining for the second consecutive day, falling to close to 1.2620 during today's Asian trading session. The pair may soon approach the key support level at 1.2600. A break below the level could drive the currency pair down towards the March low of 1.2575. The main event for GBP traders is the U.K. Gross Domestic Product (GDP) report for Q4, which will be released on 28 March at 7:00 a.m. UTC. The market anticipates the GDP figures to indicate contractions of 0.3% quarterly and 0.2% annually. If the actual GDP numbers exceed the forecast, the GBP/USD could gain bullish momentum.