Gold Remains Stable Despite Easing US Inflation
The gold (XAU) price had decreased by 0.04% by the end of the previous week. On Friday, XAU/USD remained stable throughout the day and moved within the 2,320–2,340 range.
The price of gold remained stable after US data showed a decline in inflation, increasing investors' hopes for an interest rate cut this year. Friday's Personal Consumption Expenditures (PCE) Price Index showed that year-on-year inflation has slowed from 2.7% in April towards 2.6% in May. The latest US inflation data had little effect on market expectations regarding the beginning of the monetary policy easing as it aligned with analysts' expectations. Traders are pricing in a 63% chance of a first rate reduction in September, according to the CME FedWatch Tool. This week, the market is waiting for a speech by Fed Chairman Jerome Powell on Tuesday, followed by the latest Federal Open Market Committee (FOMC) meeting minutes on Wednesday and data on the US labour market on Friday. The report will help get more information about the US interest rate path.
Last week, demand for gold in India declined amid rising prices, as many people postponed buying in the hope that the government would reduce import duties.
"Key metals consumer China's manufacturing activity grew at the fastest pace in more than three years, a private sector survey showed. It contrasts with an official PMI released on Sunday that showed a decline in manufacturing activity", Reuters reports on the situation in another large gold-importing country.
"Although central bank purchases have slowed down in recent months, we believe emerging market's central banks will continue to diversify their reserves into gold", ANZ said in a quarterly note.
Spot gold was nearly unchanged at $2,324.44 per ounce in the early hours of the European trading session. The market is likely to be calm today, with low volatility. Traders are waiting for Federal Reserve Chairman Jerome Powell's speech tomorrow and the following reports. The price support level is located at 2,300, and the resistance level is at 2,340.
The Euro Rises as the French Election Uncertainty Ease
The euro (EUR) was essentially unchanged on Friday as traders refrained from opening large orders ahead of the first round of French parliamentary elections.
EUR/USD has been in a downtrend for most of June as the outlook for the eurozone economy was clouded by political uncertainty. Moreover, a more cautious approach to future rate cuts by the US Federal Reserve (Fed) also contributed to the euro's weakness. EUR/USD was declining as investors continued to expect the European Central Bank (ECB) to be more dovish than the Fed this year. However, this outlook has started to shift lately. The latest interest rates swap market data implies 45 basis points (bps) worth of rate cuts by the Fed by the end of 2024 and 43 bps rate reductions by the ECB over the same period. Thus, EUR/USD has managed to stabilise in the 1.07000 area. However, the pair may lack a clear trend in the short term and will probably continue to move sideways.
EUR/USD jumped sharply during the Asian trading session and continued to rise in the early European session as the uncertainty surrounding French Parliamentary elections has subsided. Marine Le Pen's far-right National Rally (RN) party won the first round of elections on Sunday but by fewer votes than was initially projected.
"They (RN) have actually performed a little bit worse than what was expected. As a result of that, we saw the euro rise modestly in early Asian trade just because we might actually get less fears of more expansionary and unsustainable fiscal policy if the far-right party did a little bit worse", said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA).
Still, EUR/USD hasn't yet broken the downtrend, and the pair has been down by 1% since President Emmanuel Macron called the election on 9 June.
Today, traders should focus on German Consumer Price Index (CPI) reports, which will be released throughout the day, and the US ISM Manufacturing Purchasing Managers Index (PMI) data due at 2:00 p.m. UTC. If German inflation surprises on the upside or US PMI numbers are lower than expected, EUR/USD will almost certainly rise, possibly touching 1.08000. Otherwise, the pair may pull back towards 1.07000 again.
Japan's Growth Problems Deepen, Fueling Yen Weakness
The Japanese yen (JPY) continued to weaken on Friday. USD/JPY set a new multi-decade high as the US Personal Consumption Expenditure (PCE) Price Index figures mostly aligned with market expectations.
US monthly inflation was unchanged in May, while consumer spending rose only marginally, meaning that the Federal Reserve (Fed) may still opt for a 25-basis-point rate cut in September. Investors continue to price in a 63% chance that the Fed's policy easing would start in September, compared to about 64% before the data was released. The US dollar (USD) initially dipped against the Japanese yen, a currency highly sensitive to US economic data due to its close link with US Treasury yields. However, the greenback recovered and ended flat on the day, as the larger interest rate gap between the US and Japan remained the key driver for investors.
USD/JPY was rising during the Asian and early European trading sessions. A surprising government update revealed that Japan's Gross Domestic Product (GDP) growth rate in Q1 contracted more sharply than previously estimated. The downward revision might prompt the Bank of Japan (BOJ) to revise its growth forecasts downward in its upcoming projections, potentially impacting the timing of its next interest rate hike. As a result, USD/JPY briefly rose above the 161.00 level.
Today, traders should focus on the US ISM Manufacturing Purchasing Managers' Index (PMI), due at 2:00 p.m. UTC. If the numbers are higher than expected, USD/JPY may continue to rise even though the bullish trend is already quite mature and has been showing technical signs of exhaustion lately. Conversely, weaker-than-expected PMI numbers may prompt a downward correction in USD/JPY, possibly below the 160.00 mark.