Gold Is Rising for the Second Month on Expectations of a Dovish U.S. Monetary Policy
The gold (XAU) price declined by 0.43% on Thursday but remained close to seven-month highs as the Personal Consumption Expenditure (PCE) Price Index aligned with the market expectations.
The U.S. PCE Price Index rose 3% in October compared to the previous year, decelerating from the 3.4% increase in the last three months. The U.S. inflation has recorded its smallest yearly rise since March 2021. Moreover, Jobless Claims figures reached a 2-year high. Thus, easing price pressures and a softer labor market support the view that the Federal Reserve (Fed) has ended the rate hiking cycle, increasing the chances of rate cuts in the upcoming months. Fed officials' dovish comments earlier this week also backed this opinion. According to the CME Fed Watch Tool, the probability of an interest rate cut in March has increased to 49.2%.
During the Asian trading session, XAU/USD declined but saw an uptick in the early hours of the European session. Today, traders should pay attention to a series of U.S. macroeconomic reports, as they will likely influence the XAU/USD trend in the short term. The ISM Manufacturing Purchasing Managers' Indexes data release at 3:00 p.m. UTC could trigger some volatility. Additionally, two speeches by Jerome Powell, the Fed's Chair, at 4:00 p.m. and 7:00 p.m. UTC may give some insights into the U.S. interest rate trajectory. His comments can significantly alter the recent trend in the US Dollar Index and gold. If Powell sounds more dovish, XAU/USD may rise above 2,050. However, if he continues to suggest that rates need to remain higher for longer, the bullish trend in gold might reverse.
"Spot gold may retest a resistance at $2,049 per ounce, and a break above that could lead to gains in the $2,059–$2,069 range," stated Reuters analyst Wang Tao.
The BOE is Expected to Continue With Its Hawkish Monetary Policy
The British pound (GBP) lost 0.57% on Thursday and closed below the critical 1.26500 level as the US Dollar Index rose.
The market has a mixed view of the latest U.S. Personal Consumption Expenditure (PCE) report. On the one hand, it showed an expected slowdown in inflation. On the other hand, an annual 3% rise in the PCE numbers is still above the official inflation target.
"While the 3% level remains too high to declare victory on inflation, it marks a new low for the series that will likely please the Fed and alleviate any pressure to implement further hikes," said Ryan Brandham, the head of global capital markets at Validus Risk Management.
The Bank of England's (BOE) monetary policy seems more hawkish than the Federal Reserve's (Fed). The latest BOE's Decision Maker Panel survey has backed up policymakers' rhetoric that it's too early to discuss rate cuts. The U.K. inflation remains at 4.4%, one of the highest numbers among the industrialized nations. Thus, the BOE will likely continue pursuing a comparatively tighter monetary policy than other central banks, meaning the bullish pressure on the British pound may persist in the short term.
GBP/USD rebounded during the Asian trading session but started to decline during the early European session. Today, GBP/USD may experience increased volatility when the U.S. ISM Manufacturing Purchasing Managers' Indexes (PMI) report is released at 3:00 p.m. UTC. Higher-than-expected figures may bring the pair lower, possibly towards 1.26000. If U.S. PMI figures remain below the forecast, the bullish trend in GBP/USD may continue. Additionally, Fed Chair Jerome Powell's comments at 4:00 p.m. and 7:00 p.m. UTC may disrupt the market. If he repeats the recent dovish comments made by his Fed colleagues, GBP/USD may recover towards 1.27000.