Gold's Six-Week Rally Continues Amid Geopolitical Uncertainty
The gold (XAU/USD) price rose by 0.14% on Friday but failed to hold above the important $2,870 level.
XAU/USD has been rising for six consecutive weeks as investors bought safe-haven assets amid escalating trade tensions between the U.S. and China.
"Central focus of the gold market continues to be the uncertainty in regard to the Trump tariff policies", said David Meger, director of metals trading at High Ridge Futures.
Last week, U.S. President Donald Trump imposed new duties on China but granted Mexico and Canada a one-month reprieve. Still, political and financial uncertainty remains high as markets suspect the U.S. may soon introduce new tariffs on China and Europe.
Furthermore, the U.S. nonfarm payroll report came out weaker than expected last Friday, slightly increasing the chances for more Federal Reserve (Fed) rate cuts this year. Thus, investors feel no urgency to sell the bullion. On the contrary, dips will likely be bought as XAU/USD continues to trade in a very strong uptrend.
Earlier today, XAU/USD rose during the Asian and early European trading sessions. Today's macroeconomic calendar doesn't feature major news releases that could provoke a strong move in XAU/USD. Traders should monitor any new developments around U.S.–China trade discussions and news on the prospect of Russia-Ukraine peace negotiations. Easing of tensions may trigger a sharp sell-off in XAU/USD.
"Spot gold may break resistance at $2,883 per ounce and rise to $2,901", said Reuters analyst Wang Tao.
Mixed NFP, Trump's Tariffs, and Weak German Data Put Pressure on the Euro
The euro (EUR/USD) lost 0.52% against the US dollar (USD) on Friday as the greenback moved higher despite mixed nonfarm payroll (NFP) data.
The report showed U.S. job growth slowed more than expected in January after robust gains in the prior two months. Still, the unemployment rate declined towards just 4%, probably making the Fed less likely to cut interest rates until June.
"There is still much to like about the U.S. labour market's resilience and sustainability. This report cements the view that the Fed could be on hold for a considerable time before cutting rates again", said Scott Anderson, chief U.S. economist at BMO Capital Markets.
Thus, investors' still hawkish view of the Fed supports the greenback. Additionally, U.S. President Donald Trump announced that he plans to introduce reciprocal tariffs on many countries this week without specifying which ones. His comments additionally boosted the U.S. dollar.
EUR/USD has weakened substantially this year due to Trump's various tariff announcements. However, the bearish sentiment surrounding the EUR/USD extends beyond trade tensions. The eurozone economy struggles with sluggish growth, rising inflationary pressures, and lingering structural issues that cast a shadow over the currency's prospects. Friday's data showed that German industrial production — the largest eurozone economy — declined by another 2.4% in December.
Earlier today, EUR/USD rose during the Asian and early European trading sessions. The only notable event that could potentially move the pair today is the speech by European Central Bank (ECB) President Christine Lagarde, due at 2:00 p.m. UTC. She might offer some forward guidance on future ECB monetary policy changes.
Bailey's Comments Offer a Brief Respite Amidst British Pound Downward Trend
The British pound (GBP/USD) lost 0.2% against the US dollar (USD) on Friday as the greenback rose despite mixed nonfarm payroll (NFP) data and lower-than-expected Consumer Sentiment Index.
While the U.S. NFP report showed a drop in the unemployment rate, the U.S. macro data was generally weaker than expected. Still, the US Dollar Index (DXY) managed to move higher as the threat of a global trade war returned. U.S. President Donald Trump pledged to impose more tariffs on many countries but didn't provide more details. Additionally, the sterling has been under bearish pressure since the Bank of England (BOE) lowered its key rate towards 4.5%. Also, officials stated that the U.K. economy would grow by just 0.75% this year, half the previous forecast.
However, GBP/USD recovered slightly after Andrew Bailey, BOE Governor, downplayed the significance of some policymakers' recent votes for larger interest rate cuts in an interview with Bloomberg. Fundamentally, the divergence in monetary policy expectations between the BOE and the Federal Reserve (Fed) continues to favour the greenback. Investors expect the U.K. central bank to deliver 50 basis points (bps) worth of rate cuts over the next six months, while the Fed projected to deliver only 25 bps. It seems reasonable to infer that traders will likely continue to sell the rallies in GBP/USD in the medium term.
Earlier today, GBP/USD rose slightly during the Asian and early European trading sessions. The macroeconomic calendar doesn't feature major news releases that could provoke a strong move in GBP/USD today. Key levels to watch are support at 1.23800 and resistance at 1.24200.