Gold Stays Above the Support Of 2,400–2,410 Ahead of FOMC Minutes
On Tuesday, XAU/USD fluctuated within 2,410–2,430, while market participants awaited further information from Federal Reserve (Fed) officials on the US interest rate path. Overall, gold lost 0.22% yesterday.
Recent data indicates that US inflation has resumed its declining trend, but some Fed officials have remained cautious about reducing interest rates too early. For instance, Fed Governor Christopher Waller stated that the central bank should wait a few more months to confirm that inflation is truly returning towards its 2% target level before easing monetary policy. However, he added that further rate increases are unnecessary. According to the CME FedWatch Tool, the market still expects rate cuts this September with a 64% probability.
Meanwhile, geopolitical tensions provide some support for gold prices. Recent increases in tensions between the US and China—the imposition of significant tariffs on Chinese electric vehicles and subsequent anti-dumping investigations by China—indicate the potential for a renewed trade war between the two largest economies. Additionally, the market worries there will be an escalation in the Middle East conflict following the recent death of Iranian President Ebrahim Raisi. Israel continues its operation in Rafah, urging 'the nations of the civilized world' to reject requests from the International Criminal Court prosecutor for arrest warrants against its leaders and stating that it will ignore any such orders.
XAU/USD has been moving in a range above 2,400–2,410 during the Asian and early European trading sessions today. There is no significant news scheduled for today, but the market will likely be watching the release of the Federal Open Market Committee (FOMC) minutes at 6:00 p.m. UTC for indications on the monetary policy direction. If the tone of the minutes is more dovish, it could boost XAU/USD. Otherwise, there may be some selling pressure on the precious metals market if officials' rhetoric remains hawkish.
Euro Consolidates in the 1.08500 Area Ahead of FOMC Minutes
Yesterday was rather volatile for EUR/USD, but the pair ended the day essentially unchanged.
Although the pair continues to move within a broad bullish trend, the market seems willing to take a pause as uncertainty surrounding the path of interest rates in the eurozone has increased. The European Central Bank (ECB) has promised to deliver a first 25-basis-point rate cut at the next meeting on 6 June. ECB President Christine Lagarde said yesterday that she was 'really confident' that inflation was under control as the impact of the energy crisis and supply-chain bottlenecks eased. Thus, the market's attention has shifted to where the rate will go in the long run.
Still, policymakers call for caution. 'If rates are lowered for the first time in June, that doesn't mean we will cut rates further in subsequent Governing Council meetings. We are not on auto-pilot, said Joachim Nagel, the Bundesbank President. In any case, the market continues to expect the ECB to pursue a more dovish monetary policy in 2024 than the Federal Reserve (Fed). In other words, the divergence in monetary policy expectations between the two central banks continues to favor the US dollar.
EUR/USD remained quiet during the Asian and early European trading sessions. Today, traders should focus on two events that might potentially impact the EUR/USD exchange rate: the US Existing Home Sales report at 2:00 p.m. UTC and the FOMC minutes at 6:00 p.m. UTC. The most important event is arguably the FOMC minutes, as the protocols will show the sentiment inside the Fed. If market participants perceive today's FOMC minutes as dovish, EUR/USD will continue its upward trend towards the key resistance level of 1.09000. Conversely, if the minutes reveal that Fed policymakers were leaning hawkish, EUR/USD might drop towards 1.08000.
British Pound Jumps by 0.3% on Today's CPI Data
The British pound (GBP) moved sideways on Tuesday as investors were awaiting the U.K. Consumer Price Index (CPI) report.
Today's U.K. inflation report is arguably one of the key factors for the Bank of England (BOE) in deciding on its next monetary policy move. The next CPI report for May will be released just a day before the June meeting, so the central bank will take the April data into account. The BOE Governor, Andrew Bailey, stated that 'the next move on rates will be cut' and added that he expects a decline in inflation in April.
On the other hand, Federal Reserve (Fed) Governor Christopher Waller changed his hawkish rhetoric and stated he didn't believe further rate hikes would be necessary. He also added that the Fed needs to get convincing data before cutting interest rates any time soon. Additionally, Atlanta Fed President Raphael Bostic emphasized the need for a cautious approach towards monetary policy changes. He noted that he would 'rather wait longer for a rate cut to ensure inflation doesn't start to bounce around'. Fed officials stay cautious about the timing of interest rate cuts as hotter-than-expected inflation data weakens hopes of an easing cycle starting soon. Financial markets expect the first rate cut to happen in September at the earliest, with two 25-basis-point reductions before the end of the year, according to the CME FedWatch Tool. This might boost the US dollar (USD) and limit the GBP/USD's upside in the near term.
GBP/USD rose sharply after the release of higher-than-expected U.K. CPI figures. This surprise decreased the chance of the BOE cutting rates in June from 55% to 48%. GBP/USD jumped by 0.3% following the data release, reaching 1.27500. We will now likely see a pause and consolidation within a narrow range before the price continues to move further.