Gold Rises to Record High on Geopolitical Tensions and Rate Cut Hopes
The gold (XAU) price reached a record high on Monday, advancing towards 2,140, driven by a surge in safe-haven demand amid the developing Middle East conflict.
Last time, bullion reached a record peak in December at 2,135. Gold, traditionally seen as a hedge in periods of political and financial turmoil, has risen by around 17% since the beginning of the conflict between Israel and Hamas on 7 October.
"Geopolitical risks emanating from the Red Sea and a year with a dense election calendar globally will likely see continued strength in retail demand for gold," stated Nitesh Shah, the commodity strategist at WisdomTree.
Another factor influencing the rise in gold is the growing expectation of a US interest rate cut in June. According to the CME FedWatch Tool, traders are now 70% sure that the Federal Reserve (Fed) will begin reducing rates by June. High interest rates tend to weigh down on gold as they increase returns on alternative investments like bonds and strengthen the US dollar, increasing the cost of the precious metal for international purchasers.
XAU/USD remained essentially unchanged in the Asian and early European trading sessions. Today, traders should pay attention to two key US reports: the ADP Employment Change at 1:15 p.m. UTC and the JOLTs Job Openings at 3:00 p.m. UTC. The data will provide insights into the current state of the US labour market, potentially influencing investors' interest rate expectations and affecting gold prices. If the data exceed expectations, the chance of a rate cut by the Fed in the summer may decrease, likely leading to a drop in XAU/USD, possibly below 2,100. Otherwise, the possibility of the imminent rate cut may increase, potentially pushing XAU/USD towards 2,200.
EUR/USD Trading Activity Remains Subdued Ahead of Critical US Reports
The trading session on Tuesday was rather volatile for EUR/USD due to many important releases on both sides of the Atlantic. The pair fluctuated within the 1.08400–1.08750 range but finished the day essentially unchanged.
EUR/USD has been in an uptrend since mid-February as investors' interest rate expectations turned slightly less dovish for the eurozone and more hawkish for the US Weaker-than-expected US macroeconomic statistics published yesterday gave more reasons for the EUR bulls to keep their long positions. 'The ISM numbers showed growth in the service sector slowed in February, in no small part due to a decline in employment levels, and that has raised some concerns about the strength of the US economy,' said Stuart Cole, the chief economist at Equity Capital. Indeed, if concerns grow stronger, investors may begin to expect the Federal Reserve (Fed) to cut the rates sooner, which will likely push EUR/USD higher.
Currently, the market is pricing in a 70% chance that the Fed will ease its policy in June. Meanwhile, the eurozone's business activity showed signs of recovery last month as the services industry expanded for the first time since July 2023. Eurozone's S&P Global's Composite Purchasing Managers' Index (PMI) jumped to 49.2 in February, above the expected 48.9. Still, investors expect the European Central Bank (ECB) to follow the Fed's path and cut the rates in June, pricing in an almost 100% probability of that scenario.
EUR/USD was essentially unchanged during the Asian and early European trading sessions. Market participants are probably reluctant to place large orders ahead of important events due later this week. Today, traders should focus on the U.S labour market statistics: ADP Employment and JOLTS Job Openings reports at 1:15 p.m. UTC and 3:00 p.m. UTC. If the jobs figures are weaker than expected, EUR/USD will likely rally above 1.09000. Conversely, EUR/USD may drop sharply if the reports indicate continuing strength in the US labour market. In addition, Fed Chair Jerome Powell will give a speech in US Congress today. He will probably repeat his previous statements that the Fed waits for more data before any rate cuts. Still, surprises are possible, and investors' reactions may be quick and sporadic.
USD/CAD Faces Strong Resistance Ahead of Today's BOC Rate Decision
The Canadian dollar (CAD) lost 0.13% against the US Dollar (USD) on Tuesday due to a decline in the price of crude oil and despite weaker-than-expected US macro statistics.
USD/CAD has been in an uptrend since the end of December, but a sideways trend seems to have formed since the end of February. Indeed, traders are struggling to price in conflicting fundamental factors. The US data has been weaker than expected lately, forcing the market to expect the Federal Reserve (Fed) to cut the rates in June, exerting a downward pressure on the greenback. Meanwhile, the probability that the Bank of Canada (BOC) might ease its monetary policy sooner is larger. According to the latest interest rate swap market data, investors currently price in a roughly 50% chance of a 25-basis-point (bps) rate cut by the BOC in April.
As for investors' longer-term expectations, there is no divergence between the Fed and the BOC—both are expected to follow the same path and cut the rates by the same amount in 2024. That is why today's BOC interest rate decision is important to watch as policymakers may provide forward guidance in the Rate Statement and at the press conference.
USD/CAD was falling slightly during the Asian and early European trading sessions. Today, the main event is the BOC interest rate decision at 2:45 p.m. UTC and the following press conference at 3:30 p.m. UTC. If the regulator officials sound hawkish, USD/CAD will most likely decline. Conversely, dovish forward guidance from the central bank—indications that the interest rate may be cut soon—will likely strengthen the bullish trend in USD/CAD. Key levels to watch are 1.36000–1.36200 and 1.35700–1.35500.