Gold (XAU/USD) moved within the $2,650–$2,670 range on Wednesday as investors looked forward to a series of US macro data for further guidance on the Federal Reserve (Fed) monetary policy.
Gold remained near $2,660 on Wednesday, hovering at record levels, as markets evaluated the extent of potential rate cuts by the Fed in its ongoing easing cycle.
This week, several Fed officials advocated for a cautious stance on further policy changes following the substantial 50-basis-point (bps) cut earlier this month.
However, market expectations still lean toward another rate cut in November, with fed fund futures pricing in approximately a 60% likelihood of an additional 50-bps reduction.
The US report on Wednesday revealed that new home sales in the previous three months were revised to be higher than initially estimated. Mortgage rates have fallen to their lowest in over 18 months, while the supply of existing homes remains limited.
"We expect lower mortgage rates, pent-up demand, and a still relatively scarce supply of existing homes, despite recent increases, to support modest growth in new home sales through the remainder of 2024 and into 2025", said Nancy Vanden Houten, lead US economist at Oxford Economics.
Last month, new home sales fell by 4.7% towards a seasonally adjusted annual rate of 716,000 units, according to the Census Bureau.
XAU/USD was essentially unchanged during the Asian trading session. Today, traders should focus on the release of the US Durable Goods Orders report at 12:30 p.m. UTC. Lower-than-expected figures should positively impact XAU/USD, potentially pushing the price above $2,670.
However, the pair may start a downward correction on better-than-expected figures. Additionally, Fed Chair Jerome Powell will give a speech today at 1:20 p.m. UTC. His comments may provide new insights on the upcoming rate-cut strategy and affect XAU/USD's price.
"Spot gold may break resistance at $2,667 per ounce and rise into the $2,675 to $2,689 range", said Reuters analyst Wang Tao.
Euro Is Under Pressure as the US Housing Market Data Exceed Expectations
The euro (EUR/USD) lost 0.43% against the US dollar (USD) on Wednesday following the release of a better-than-expected US New Homes Sales report.
The data showed that the US housing market saw a smaller-than-anticipated decline in new single-family home sales in August. Additionally, the report indicated that new home sales were higher than estimated in the previous three months. Furthermore, lower mortgage rates and falling house prices may boost demand in the coming months, which may discourage the Federal Reserve (Fed) from cutting the rates too aggressively. However, traders continue to price in a 60% chance of a 50-basis-point rate cut—up from 37% a week ago—at the Fed monetary policy meeting on 7 November.
Meanwhile, despite weak German economic data and concerns about the French budget, the market continues to doubt the European Central Bank’s (ECB) willingness to cut the rates at the upcoming meeting.
"China's stimulus had earlier contributed to a stronger euro, with its resilience partly driven by a perception that a better outlook for Chinese demand could feed its way back through into Germany and through into Europe", said Jane Foley, senior Forex strategist at Rabobank.
EUR/USD was rising during the Asian and early European trading sessions. Today will likely be a very volatile day for USD pairs due to a series of economic reports and scheduled speeches by Fed officials. Arguably, the main event is the publication of the US Gross Domestic Product, Jobless Claims, and Durable Goods Orders reports at 12:30 p.m. UTC.
Better-than-expected results will put additional bearish pressure on EUR/USD, but worse-than-expected figures will likely pull the pair above 1.11800 again. In addition, Jerome Powell will speak at 1:20 p.m. UTC and may provide forward guidance on future changes in US monetary policy.
Canadian Dollar Rebounds on the Possibility of More Cautious US Rate Cuts
USD/CAD rebounded and retested the 1.34850 resistance level on Wednesday. The pair experienced a 0.4% increase after US data indicated that the sales of new single-family homes declined less than anticipated in August.
Sales of new single-family homes declined by 4.7% in August, reaching a seasonally adjusted annual rate of 716,000. While this drop partially offset the revised 10.3% surge from the previous month, it still slightly exceeded market forecasts of 700,000. This drop may influence the Federal Reserve's (Fed) plans regarding the US monetary policy. Still, according to the CME FedWatch tool, there is a 60.5% possibility that the Fed will cut the rate by another 50 basis points (bps) in November.
Overall, investors seem to have taken a more cautious approach to the US interest rate reduction, pushing the US Dollar Index (DXY) higher. This week, Fed officials didn't give a unified view of where they think rates will go. On Wednesday, Fed governor Adriana Kugler said she supports the decision to cut rates by 50 bps in November, but she didn't say her preferred path for future cuts.
Earlier this week, Austen Goolsbee from the Chicago Fed said policymakers shouldn't lag behind in making sure the economy transitions smoothly. Raphael Bostic from the Atlanta Fed also stressed the importance of not cutting rates too quickly. Overall, there is no clear consensus on the US interest rate path.
USD/CAD has been declining during the Asian and early European trading sessions. Today, the US Jobless Claims report will be published at 12:30 p.m. UTC. These updates on the state of the US labor market will provide further insight into the pace of interest rate reduction. Additionally, Fed Chairman Jerome Powell will deliver a speech at the US Treasury Market Conference in New York at 1:20 p.m. UTC today. His comments may affect the US dollar and related pairs, including USD/CAD.