Gold Stabilises Amid Recession Concerns
XAU/USD has moved sideways since 5 August, forming a triangle pattern as investors continue to assess the possibility of a recession.
Global risk sentiment remains fragile due to concerns about the world's two largest economies: an economic slowdown in China and a potential US recession. Additionally, the risk of escalating geopolitical tensions in the Middle East is pushing investors toward safe-haven assets like precious metals.
Moreover, the anticipation of more significant interest rate cuts by the Federal Reserve (Fed), fueled by Friday's weak US employment report, has led to a decline in US Treasury bond yields.
This downward trend has pulled the US dollar (USD) away from the weekly high reached on Wednesday, indicating that the most likely direction for the gold price (XAU) is upwards.
Lower interest rates increase the attractiveness of non-interest-bearing precious metals such as gold. Investors are now looking ahead to today's US Jobless Claims report to verify whether the economy, particularly the labour market, is really slowing down.
Meanwhile, official data released on Wednesday revealed that the People's Bank of China (PBoC) didn't add to its gold reserves for the third consecutive month in July.
This week's recovery in global equity markets has lost momentum due to persistent concerns about US recession, providing some support to safe-haven assets like gold during today's Asian session. Investors are now awaiting the Initial Jobless Claims for the week ending 3 August, due at 12:30 p.m. UTC. If labour market data is strong, gold will continue its downward correction. Otherwise, gold may rise towards $2,420.
"Spot gold may retest resistance at $2,403 per ounce, a break above which could open the way towards $2,418 to $2,434 range", said Reuters analyst Wang Tao.
Euro Is Set Up for Another Bullish Momentum
EUR/USD continued to move within 1.09000–1.09500 on Wednesday, losing 0.07%. Meanwhile, the US Dollar Index (DXY) has been gearing towards the 103.500 resistance level, gaining 0.25%.
The recent rise of the euro (EUR) can be attributed to the anticipated divergence in the monetary policy path between the Federal Reserve (Fed) and the European Central Bank (ECB).
Given that the ECB started reducing rates earlier than the Fed, market participants now expect that the Fed may have to deliver more substantial rate cuts in the near future. The Fed is projected to lower rates by approximately 105 basis points (bps) by the end of the year compared to a 64-bps reduction from the ECB, based on Refinitiv data.
Moreover, the recent eurozone inflation data suggests that the ECB may refrain from a cut in September, further deepening the divergence between the two central banks.
According to an ING analyst, Francesco Pesole, there is a clear bias that the ECB will deliver 50-bps reductions rather than 75-bps rate cuts at the next three meetings before the end of the year. Overall, demand for EUR/USD could increase if it holds above 1.09000 over the next few days.
EUR/USD has been moving bullish during the Asian and early European trading hours. Today's US Jobless Claims report will be the main focus for investors.
A number exceeding the forecast could drive EUR/USD towards 1.10000, whereas a weaker-than-expected one could push the euro back towards the 1.09000 support level.
U.K. Labour Market Weakness Puts Bearish Pressure on Pound
Yesterday, the British pound (GBP) rose above 1.2730 against the US dollar (USD) but failed to hold above the level and finished the day essentially unchanged.
GBP/USD is currently near its one-month low as the US Dollar Index (DXY) has recovered after a severe sell-off on 2 and 5 August.
Additionally, a risk-off mentality may have started to return to the markets. The US stock indices were down yesterday even though the market continued to expect aggressive rate cuts by the Federal Reserve (Fed).
Furthermore, yesterday’s survey from the U.K. Recruitment and Employment Confederation showed that the U.K. job market was slowing down, with wage growth easing. This data will influence the Bank of England's (BOE) decision on when to potentially lower interest rates.
Currently, interest rate swap market data implies only a 32% chance of a 25-basis-point (bps) rate cut by the BOE in September.
If the U.K. macroeconomic data—specifically, next week’s claimant count and inflation reports—show further signs of cooling, the market may begin to price in more rate cuts. This may push GBP/USD down, probably below 1.25150.
GBP/USD was essentially unchanged during the Asian and early European trading sessions. The main focus today is on the US Jobless Claims report at 12:30 p.m. UTC.
After last week's weaker-than-expected US nonfarm payroll (NFP) report shocked the global financial market, investors and traders will closely watch the upcoming US labour market data.
A higher-than-expected rise in unemployment claims may reverse the bearish trend in GBP/USD and pull the pair above 1.27200.
Conversely, lower-than-expected results will likely push GBP/USD below 1.26600.