Gold Rose Despite Strong US Consumer Confidence Data
XAU/USD rose by 0.43% on Tuesday despite higher-than-expected US CB Consumer Confidence figures.
The Conference Board (СВ) reported on Tuesday that consumer confidence figures rose from 97.0 in April towards 102.0 in May, surpassing the estimate of 95.9. This release strengthened the US dollar but didn't affect XAU/USD, as the pair closed at 2,360 yesterday. On Tuesday, Minneapolis Federal Reserve (Fed) President Neel Kashkari stated that the Fed should delay cutting rates until inflation significantly slows. He also mentioned that the central bank may consider hiking interest rates as inflation remains sticky. Investors now focus on Friday's US Personal Consumption Expenditures (PCE) Price Index data, which may affect the Fed's outlook on monetary policy. According to the CME FedWatch Tool, traders are currently pricing in approximately a 57% chance of a rate cut by November.
Meanwhile, rising geopolitical risks in the Middle East continued to bolster the safe-haven appeal of precious metals. Recent reports indicated that Israel's military denied striking a tent camp west of Rafah. However, Gaza health authorities reported casualties among civilians.
XAU/USD moved sideways during the Asian and early European trading sessions. Today, volatility is likely to be relatively low as the economic calendar is uneventful. However, speeches from Fed officials at 5:40 p.m. and 11:00 p.m. UTC may affect the market. Traders will be watching for any clues on the future path of US interest rates that may determine the next big move in XAU/USD.
Strong US Data Put Downward Pressure on the Euro
On Tuesday, the euro (EUR) rose by 0.22% following European Central Bank (ECB) official Isabel Schnabel's hawkish speech. However, the pair lost its gains after the release of a better-than-expected US CB Consumer Confidence report.
Consumer confidence rose towards 102.0 in May from 97.0 in April, exceeding the forecast of 95.9. EUR/USD now faces challenges as the US Dollar Index (DXY) strengthens on increasing risk aversion, possibly triggered by hawkish remarks from Minneapolis Federal Reserve (Fed) President Neel Kashkari. Kashkari indicated that the regulator may consider rate increases and expressed uncertainty about the disinflationary process. In December 2023, markets had anticipated over six rate cuts of at least 25 basis points (bps) each, with the first decrease in March. Today, investors are pricing in around a 50% chance of one 25 bps cut in September, while the second decrease is under question.
The ECB is widely expected to deliver an interest rate cut at the meeting on 6 June, and the market speculates on the possibility of future policy easing. Policymakers remain data-dependent and cautious about aggressive rate cuts to avoid slowing disinflation. Investors now expect one more rate cut after the June meeting, down from the three anticipated decreases in 2024 last week. On Monday, ECB officials emphasized flexibility in the timing and pace of cuts. This week, today's German preliminary May inflation report and eurozone preliminary inflation data on Friday will affect the EUR/USD exchange rate.
EUR/USD continued declining as US Treasuries increased above 4.5% during Tokyo trading hours. Today, traders should focus on the German inflation data. Each German state will release its own Consumer Price Index (CPI) report starting at 8:00 a.m. UTC, and the final report will come out at 12:00 p.m. UTC. If inflation figures are higher than expected, investors will have to readjust their dovish stance on eurozone monetary policy, and EUR/USD will rally. Conversely, lower-than-expected CPI will likely extend the downward correction and push the pair down towards 1.08300.
The Market Guesses if BOJ Will Continue Its Interventions
USD/JPY rose by 0.17% yesterday, continuing a steady bullish trend since 3 May. However, the upward momentum gradually weakens and could signal an imminent price correction.
Yesterday's US Consumer Confidence data exceeded expectations and pushed USD/JPY higher. Recently, the pair reached 160.000, prompting the Bank of Japan (BOJ) to begin interventions. However, actions taken by the government didn't help much, and the yen reached a 34-year low. Experts estimate that the central bank spent $57.21 billion to support the weakening national currency. 'Perhaps Japanese officials sound out verbal warnings again, but without tangible action, it's likely dollar/yen marches towards the levels seen in late April,' commented Prashant Newnaha, senior Asia-Pacific rates strategist at T.D. Securities.
In his recent speech, BOJ board member Seiji Adachi focused on policy issues, but the main interest of investors was whether the regulator would intervene in the current situation. Seiji Adachi said that the central bank may raise interest rates if a sharp fall in the yen boosts inflation. These comments supported the Japanese yen, and USD/JPY slightly retreated from its highs. The Japanese yen has been falling even though the US Dollar Index (DXY) has been in a downtrend since the beginning of May, with the decrease reaching 1.49%. Many US data releases will come out this week and could significantly impact the market.
Early this morning, the Japan Consumer Confidence data came out below market expectations. Despite this, USD/JPY continued its downward correction. Today, the main question is whether the BOJ will conduct further interventions to strengthen the national currency. If inflation in Japan rises, it could lead to an increase in interest rates and positively impact the yen. In this case, the target level for USD/JPY will be 152.000.