The Upcoming US PCE Report May Shake the Gold Market Today
The gold (XAU/USD) price rose by 0.76% on Thursday despite the US Dollar Index (DXY) increasing in response to better-than-expected US macroeconomic statistics.
Two fundamental factors are driving the gold market right now. One is a strong belief that the Federal Reserve (Fed) will be easing its monetary policy for the rest of the year and well into 2025. Another is a strong structural demand from global investors and traders seeking to diversify their portfolios amid very high stock market valuations. Additionally, investors attempt to hedge the risks stemming from geopolitical instability in the Middle East and ahead of the US presidential elections.
"The market seems to be penciling in a rate cut no matter what, and now it is simply a question of what size. My expectation right now is that at least until we get to the next Fed meeting, the gold market will probably chop sideways, but there does seem to be that strong floor of support because of geopolitics", said Everett Millman, chief market analyst with Gainesville Coins.
The main risk for gold at this point is that it may experience a strong downward correction in case the US economy remains strong and spurs inflation.
XAU/USD was falling slightly during the Asian and early European trading sessions. Today's key event is the release of the US Personal Consumption Expenditure (PCE) Price Index. It is the Fed's preferred inflation measure. Thus, the results may significantly impact investors' interest rate expectations and provoke a sharp move in all USD pairs, including XAU/USD. The market expects a 0.2% rise in the monthly core PCE numbers and a 2.7% annual increase. If the figures are higher than expected, XAU/USD will almost certainly plunge sharply, with bears targeting $2,490. Conversely, lower-than-expected results may potentially pull the pair towards a new all-time high in the $2,534 area.
The Euro Drops as Investors Anticipate ECB Rate Reduction
EUR/USD fell after data on German inflation led investors to increase their expectations for a rate cut by the European Central Bank (ECB). The pair broke below the support level of 1.11000 and lost 0.38% on Thursday.
The last trading day of the month marks a busy day for European markets, as investors will be closely monitoring various data from the U.K., Germany, France, and other European countries. Still, the day's main event is the eurozone inflation figures, which are expected to slow towards 2.2% annually in August from 2.6% in July. Yesterday's preliminary German CPI data were lower than expected. This has led some market participants to speculate about the next move of the ECB at its next meeting in September. Some policymakers are cautious about lowering interest rates too soon, while others are more optimistic. However, traders have already priced in the possibility of a rate cut. If today's eurozone CPI numbers are also lower than anticipated, the ECB may be forced to lower rates to stimulate economic growth.
The euro has been trading sideways during Asian and early European trading sessions. Today, at 9:00 a.m. UTC, the pair is waiting for the eurozone CPI preliminary report. The data can give investors some hints about the European interest rate path. Also, the US Personal Consumption Expenditures Price Index data will be released at 12:30 p.m. UTC. Higher-than-expected data will put some bearish pressure on EUR/USD, while softer data may give the euro bullish momentum.
Bitcoin Corrects as the US GDP Data Exceeds Expectations
On Thursday, Bitcoin (BTC) rose during the first half of the day but began correcting after the US Gross Domestic Product (GDP) Growth Rate report came out better than expected.
On Thursday, the US Dollar Index (DXY) rose by 0.3% as the latest US GDP figures and initial jobless claims data helped ease recession concerns. Despite this, markets still anticipate 100 basis points (bps) of rate cuts at the Fed's three remaining meetings this year. However, the greenback is on track to record its most threatening monthly decline since last November, weighed down by dovish Fed expectations. Nevertheless, BTC managed to stay in the bullish trend by the end of the day, gaining 0.53%.
According to data from CryptoQuant, Bitcoin reserves on exchanges have dropped by roughly 12.9% since 1 January, leaving a total of 2.62 million Bitcoin across major crypto platforms. The shift of Bitcoin from exchanges to cold wallets generally indicates that investors are committed to holding the asset long-term and are optimistic about its future price potential. This decreasing supply on exchanges comes amid analyst predictions that, based on historical trends, Bitcoin's price could rally in Q4 of 2024.
BTC/USD declined slightly during the Asian and early European trading sessions. Today, traders await the US Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure, at 12:30 p.m. UTC. The PCE data is highly important as it could offer more clues on when the Fed will cut interest rates. According to Reuters, the market expects a 0.2% monthly core PCE Price Index rise and a 2.7% annual increase. Higher-than-expected figures will almost certainly pull the DXY above 102.000, negatively affecting all US Dollar pairs. However, if the PCE Price Index is lower than expected, BTC/USD may rise towards $61,000.