Gold Rises on Dovish Powell Comments
Gold (XAU) rose on Monday following remarks from Federal Reserve Chairman (Fed) Jerome Powell, which strengthened the likelihood of a rate cut in September.
Yesterday, XAU/USD reached its highest point since 20 May, when gold soared towards a record peak of $2,439.
Powell remarked in his speech that US inflation reports from Q2 ‘add somewhat to confidence’ that the rate of price increases is sustainably returning to the Fed's 2% target. The market considered the comments dovish, suggesting that interest rate cuts might be approaching.
The possibility of a lower base rate increases the appeal of gold, and the price of the non-yielding asset usually rises.
Meanwhile, a strengthening US dollar (USD) and rising Treasury yields, following the assassination attempt of presidential candidate Donald Trump, may put downward pressure on gold.
In other news, India's platinum imports over a four-week period from mid-June surpassed the total volume of imports for all of 2023.
According to officials' reports to Reuters, bullion dealers took advantage of a legislation gap and classified alloys with about 90% of gold as platinum to avoid paying higher duties.
XAU/USD continued to rise during the Asian and early European trading sessions. The market is waiting for the US Retail Sales report today at 12:30 p.m. UTC.
A lower-than-expected number will positively affect XAU/USD, while a figure exceeding the forecast will likely put a bearish pressure on gold.
"Spot gold may retest resistance at $2,438 per ounce, a break above which could open the way towards $2,457", said Reuters analyst Wang Tao.
Euro Is Moving Sideways, Awaiting New Data
EUR/USD declined by 0.12% on Monday, reaching the resistance level of 1.09200, but closed the day below 1.09000 following Jerome Powell's speech.
The US dollar (USD) has continued to move near its five-week low today as comments from the Federal Reserve (Fed) Chairman Jerome Powell increased the possibility of a rate cut in September.
Yesterday, he said three US inflation indicators released in Q2 had ‘added some credibility’ to the view that inflation was returning towards the Federal Reserve's 2% target.
Powell added, "We have seen three positive readings, which, when averaged, represent a fairly positive situation".
The comments strengthened the expectation of a US rate cut in September, with chances of a rate reduction standing at 100%, according to the CME FedWatch Tool.
Despite the dovish inclination, the Federal Reserve (Fed) remains data-driven. The central bank had previously tried to adopt a dovish policy stance too early at the end of 2022, resulting in a rise in inflation again in Q1, according to Charu Chanana, head of the currency strategy at Saxo Bank.
Markets may have to wait longer to be sure about a September interest rate cut. Thus, the market will closely watch any upcoming US economic data and employment figures to understand the Fed's monetary policy path.
EUR/USD has been mowing sideways, just below the resistance level of 1.09000. The ZEW Economic Sentiment Index will be released today at 9:00 a.m. UTC. This index represents the relative six-month economic outlook for the eurozone.
A reading above zero indicates optimism, while a figure below zero indicates pessimism, making it a leading indicator of the region's economic health. The index is compiled from a survey of approximately 350 German institutional investors and analysts.
If the data exceeds expectations, the euro may gain a bullish impulse. A lower-than-expected number will likely put downward pressure on the currency pair. Also, the release of the US Retail Sales report at 12:30 p.m. may affect the EUR/USD exchange rate.
USD/CAD Moves Higher on BOC Survey
The Canadian dollar (CAD) lost 0.37% on Monday despite dovish comments from Federal Reserve (Fed) Chair Jerome Powell and lower-than-expected US Empire State Manufacturing Index data.
Speaking at an event at the Economic Club of Washington, Powell said that US inflation readings ‘add somewhat to confidence’ that the pace of price increases is returning towards the Fed 2% target.
The comments indicated that a move to cut interest rates may be coming soon. Indeed, the market has now priced in a 100% probability that the central bank will ease its monetary policy in September.
Thus, additional dovish comments from the Fed officials are not fueling the current bearish trend in the US Dollar Index (DXY). Investors may even start to look further into Q4, monitoring markets' expectations for another rate cut in November or December.
While fundamental factors exert downward pressure on the greenback, recent political events have supported the currency. Yesterday, USD rose on beliefs that a failed assassination attempt on former President Donald Trump would improve his reelection chances.
Meanwhile, USD/CAD rose to almost a two-week high after a Bank of Canada (BOC) business survey revealed a decline in inflationary pressures. The data led to increased speculation that the central bank will implement another interest rate cut before the month ends.
Indeed, interest rate swaps market data imply an 80% probability that the BOC will deliver a 25 basis point cut at its policy meeting on 24 July.
USD/CAD was rising during the Asian and early European trading sessions. Today, the key event for the pair is the publication of the Canadian Consumer Price Index (CPI) report at 12:30 p.m. UTC.
Higher-than-expected figures may reverse the short-term bullish trend in USD/CAD, while lower-than-expected results will extend it beyond 1.37000.
Additionally, the US Retail Sales report, which will be released simultaneously with the Canadian CPI data, may add extra volatility to the pair.