Gold Reaches An All-Time High
The gold (XAU) neared record highs around 2,160 on Thursday, poised for a 3% weekly gain as the US dollar and Treasury yields fell on growing expectations of a rate cut by the Federal Reserve (Fed).
Gold continued rising on Thursday, setting new records for the fifth consecutive trading session as the US dollar declined. The greenback was declining due to the congressional testimony of Jerome Powell, the Fed Chair. He indicated the likelihood of interest rate cuts this year but remained cautious about monetary policy easing. Powell disappointed investors on the first day of congressional testimony by not indicating an immediate rate cut. However, he mentioned that reductions could start this year if inflation approaches the Fed's 2% goal.
"The momentum in gold saw it reach a fresh record high... amid weak US economic data and Powell's remarks being interpreted as mildly dovish, sending the US dollar and Treasury yields lower," commented Saxo Bank.
The depreciating greenback has made gold cheaper for buyers abroad, pushing XAU/USD higher.
XAU/USD was essentially unchanged in the Asian and early European trading sessions. Today, traders should focus on the US Nonfarm Payroll (NFP) report at 1:30 p.m. UTC. The release usually causes increased volatility in the Forex market. If the report is strong—average hourly earnings rise, unemployment drops, or the number of jobs created is higher than expected—XAU/USD may decline, possibly returning towards 2,080. However, any indications that the US labor market is weakening may invigorate XAU/USD bulls, driving the pair towards 2,200.
ECB Officials Remain Cautious About Interest Rate Cuts
The euro (EUR) recovered from initial losses on Thursday and slightly increased, hovering around 1.09500, after the European Central Bank's (ECB) interest rate decision.
Yesterday, the ECB kept the interest rate unchanged and lowered its inflation and GDP forecasts. ECB President Christine Lagarde stated that more data is required before considering rate cuts, though discussions on policy easing have begun. The euro and eurozone bond yields declined while stocks rose as the market and analysts predicted the regulator to deliver the first rate cut by June.
Even though inflation is declining, the trend of wage growth delays the possibility of the ECB's imminent interest rate reduction, according to Michael Holstein, DZ Bank's chief economist. 'There is still a risk of loosening the interest rate screw too early and then having to reverse it again,' he notes, suggesting the ECB's initial rate cut may not occur until June. He believes a sluggish eurozone economy will provide more room for rate cuts, implying that the ECB won't be able to ignore the economic downturn much longer.
EUR/USD remained largely unchanged during the Asian and early European trading sessions after gaining 0.45% yesterday. Today, the US Bureau of Labor Statistics will release the US Nonfarm Payroll (NFP) report at 1:30 p.m. UTC. The upcoming data will likely cause increased volatility in the market and may force investors to reevaluate the Federal Reserve's monetary policy stance. Traders should be prepared for potential significant price fluctuations. Higher-than-expected numbers will indicate that the US economy remains resilient and may reverse the bullish trend in EUR/USD. Conversely, weaker employment data could drive the euro higher.
BOJ May Consider Ending Its Negative Interest Rate Policy At The March Meeting
The Japanese yen (JPY) gained 0.93% on Thursday as investors digested the Bank of Japan's hawkish stance, while the US dollar decreased after Fed Chair Powell's testimony.
On Thursday, BOJ board member Junko Nakagawa mentioned that Japan is nearing its 2% inflation goal. Reports also indicated that at least one member suggested ending the negative interest rate monetary policy at the central bank's meeting on 19 March. This ongoing dialogue is important for the global economic market and the Forex community. Traditionally, the BOJ aimed to create inflation, unlike other central banks that were tackling rising prices. The BOJ's intent to standardize monetary policy, as its counterparts have, has led to the rise of the JPY.
Historically, markets have anticipated reforms from the BOJ, only to be later disappointed. However, inflation pressure and wage growth suggest a different scenario this time. Given the officials' statements, the upcoming March meeting is expected to be particularly intriguing. The Japanese yen is on the verge of its largest gains against the US dollar this year, as investors' confidence that the Bank of Japan may soon begin to move away from its ultra-loose monetary policy is growing.
Today, USD/JPY rose slightly during the early European trading session. Market participants are now focusing on today's US Nonfarm Payroll (NFP) report at 1:30 p.m. UTC to assess the labor market's resilience and adjust their expectations for the future interest rate path if needed. Higher-than-expected figures will support USD/JPY, potentially pushing the pair's exchange rate towards 149. However, USD/JPY may continue to move downwards if the NFP figures are lower than expected.