Gold Moves Sideways Ahead of Tomorrow's Key US Updates
Yesterday, XAU/USD rose by 0.74% after the strongest drop on Friday, the largest since November 2020.
The publication of a strong employment report last week forced the market to adopt a more hawkish outlook on US monetary policy this year. Investors still expect the start of monetary policy easing, but there is no extra optimism. The market will closely monitor Wednesday's Federal Open Market Committee (FOMC) interest rate decision and the key US Consumer Price Index (CPI) report to determine when the Federal Reserve (Fed) may start cutting rates. Thus, tomorrow's inflation report for May will be the most important information that will directly affect the Fed's decisions later in the day. Moreover, the Fed will present economic projections and 'dot-plot' reports. The updated forecasts on the US monetary policy path are expected to show a smaller reduction in interest rates than previously predicted.
Regarding the gold market, there have been changes in the supply and demand ratio. The People's Bank of China has stopped buying gold after 18 months of continuous purchases. However, China's buying will likely resume when XAU/USD declines from the record highs reached in May. The factors that may support the bullish trend in gold remain in place, according to fundamental analysis. For example, an industry official told Reuters that Vietnam is expected to allow companies to import gold for the first time in over a decade, trying to limit the widening gap between local prices and international benchmarks.
XAU/USD has stabilised at the support level of 2,300.00, and the pair may continue moving sideways. The market is waiting for tomorrow's reports: US inflation data at 12:30 p.m. UTC and the Fed interest rate decision at 6:00 p.m. UTC. These reports may move the market and increase volatility in the Forex market, particularly in gold.
Euro Rebounded After Yesterday's Political Turmoil
The euro (EUR) fell on Monday but found support at the 1.07330 level and almost recovered all its losses.
French President Emmanuel Macron is reportedly attempting to unite left-wing and centrist parties against right-wing politicians but has had little success so far. The initial opinion poll indicates that the far-right National Rally party might win the snap election, though they would likely fall short of securing an absolute majority of votes. French stocks and government debt were unsettled as investors evaluated the potential for the right wing to replicate their success in French elections and the influence far-right parties might wield in the new European Union executive. Bond yields rose across Europe, with the gap between French and German debt widening significantly.
The European market has demonstrated resilience as US Treasury yields rose following Friday's jobs report and the subsequent reduction in expectations for rate cuts by the Federal Reserve (Fed) this year. 'We see diminished prospects for easing this year and now expect the first Fed cut only in November,' analysts at JPMorgan said.
EUR/USD rose slightly during the Asian and early European trading sessions. Today, the economic calendar doesn't feature any major events that could cause increased volatility in the market. As the market enters a new week, investors are watching for any changes in US economic indicators and European political tremors. Several ECB representatives will deliver their speeches today, potentially triggering volatility in EUR/USD. The euro may continue to move sideways. However, if the pair's price breaks above 1.07800, we will likely see an increase towards 1.07900 and possibly further.
British Pound Fell Sharply on Weaker-Than-Expected U.K. Labour Data
The British pound (GBP) tried to recover on Monday after a stronger-than-expected Friday's US nonfarm payroll (NFP) report.
Last week's US employment report has fueled speculation that the Federal Reserve (Fed) will maintain higher interest rates for an extended period. The stronger-than-expected nonfarm payroll (NFP) data has bolstered the US dollar. Futures traders are now pricing in nearly a 47% chance of a rate cut at the September meeting, down from 68% before the NFP report, according to the CME FedWatch tool.
U.K. inflation slowed in April, but less than expected, supporting GBP/USD. However, price pressures remain a significant challenge for the U.K. economy. The three-month Gross Domestic Product (GDP) average began to rise from zero in February but has largely remained weak. Year-on-year comparisons were stagnant from December to February, with a modest increase of 0.7% in March.
Today, GBP/USD rose ahead of the U.K. Labour Force Survey report but fell sharply after its release. The report revealed that employment decreased by 140,000, and the unemployment rate increased towards 4.4% in April, up from 4.3% in March. The unemployment rate has been rising for five consecutive months. A weak labour market increases the chances of a rate cut by the Bank of England (BOE) and pushes GBP/USD down. Traders are now awaiting tomorrow's crucial releases: U.K. Gross Domestic Product (GDP) at 6:00 a.m. UTC, the US Consumer Price Index (CPI) at 12:30 p.m. UTC, and the Federal Reserve (Fed) interest rate decision at 6:00 p.m. UTC. These events will significantly impact GBP/USD and determine its future trend direction.