Gold Holds Steady Ahead of US Inflation Data
Gold (XAU) traded in a narrow range on Friday. Positive risk sentiment limited its gains, while ongoing geopolitical risks and expectations of rate cuts by the Federal Reserve (Fed) provided underlying support.
The positive sentiment in equity markets puts downward pressure on safe-haven assets such as gold, but several factors continue to provide support and limit its downside. First, the ongoing conflicts in the Middle East have heightened the risk of a broader regional war, challenging market optimism. Second, expectations of more substantial rate cuts by the US central bank (Fed) enhance the non-yielding metal's appeal.
Traders appear hesitant and may prefer to stay on the sidelines ahead of this week's key US inflation data. The US Producer Price Index (PPI) will be released on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday.
Additionally, the US Retail Sales report will come out on Thursday. These reports will shape expectations regarding the Fed's policy outlook, influencing the US dollar (USD) demand and impacting XAU/USD. Geopolitical developments will also determine the commodity's trend.
XAU/USD rose during the early European trading session. Today, the formal macroeconomic calendar is uneventful, so XAU/USD may continue to move sideways until the US inflation data is released.
"Spot gold may fall to $2,403 per ounce, following its failure to break resistance at $2,434", said Reuters analyst Wang Tao.
Euro in Sideways Mode
EUR/USD moved sideways within 1.09100–1.09300 on Friday, while the US Dollar Index (DXY) was in the 103.000–103.250 range.
The markets have experienced a turbulent week, largely due to the surprising softness of the US employment data published a week ago, which caused global stock prices to plummet.
On Thursday, US jobs data showed that the number of new unemployment benefits applications filed by Americans decreased and reached 233,000, lower than the expected 247,000. The report eased concerns that the labor market was deteriorating and confirmed that the gradual softening continues.
The Federal Reserve (Fed) officials have refuted speculation about a potential rate cut ahead of the next meeting, as the Fed governor Michelle Bowman stated over the weekend that inflation is still uncomfortably high.
She softened her typically hawkish stance by acknowledging that rates may need to gradually decrease if inflation continues to decline. Investors will gain more insight into the US interest rate path when the US Consumer Price Index (CPI) data is released on Wednesday.
Forecasts indicate that annual core inflation may decrease slightly towards 3.2%, the lowest since April 2021. A further decrease would prompt analysts to warn that the Fed is lagging in reducing rates.
EUR/USD continues to move sideways in a 1.09100–1.09300 range during Asian and early European trading sessions. No major events are scheduled today. The market is waiting for the US Producer Price Index data tomorrow and the CPI report on Wednesday.
GBP's Recovery Extends as Market Sentiment Improves
The British pound (GBP) gained 0.9% on Friday as it continued to recover from its one-month low set in last week's turbulent trading sessions.
Risk sentiment improved: global shares extended gains on Friday, recovering further from their recent big sell-off. As a result, the US Dollar Index (DXY) dropped, pulling other major currencies higher.
Fundamentally, the divergence in monetary policy expectations between the Federal Reserve (Fed) and the Bank of England (BOE) continues to favor the British pound. The latest interest rates swap market data implies roughly 100 basis points (bps) worth of rate cuts by the Fed and just over 40 bps worth of cuts by the BOE by the end of 2024.
Indeed, the sentiment inside the BOE is far from dovish. Catherine Mann, an external member of the BOE's monetary policy committee, recently said that goods and services prices were set to rise again and wage pressures in the economy could take years to dissipate.
A Bloomberg economists' survey showed that U.K. inflation may pick up for the first time in 2024. New data will likely keep BOE policymakers wary about rushing with further interest rate reductions this autumn.
GBP/USD was rising slightly during the Asian and early European trading sessions. With today's relatively quiet economic calendar and the highly anticipated US CPI report coming soon, market participants will likely be cautious, keeping volatility subdued.
However, GBP traders should still prepare for the U.K. Claimant Count report on Tuesday, U.K. and US inflation reports on Wednesday, and U.K. retail sales figures on Friday. The key levels to watch are 1.26780 and 1.28300.