Gold Holds Steady Ahead of Today's US Inflation Data
The gold (XAU) price stabilized at 2,035 on Wednesday, moving within a sideways trend as investors awaited a crucial US inflation report to clarify the US interest rate path.
Yesterday, US Gross Domestic Product figures revealed that the economy grew significantly in Q4 of 2023 due to high consumer spending but showed signs of slowing down at the beginning of 2024.
"Signs of a weaker economy would be expected to support gold as they imply greater pressure on central banks to cut interest rates," stated Frank Watson, the market analyst at Kinesis Money.
Although the US economy has made significant progress toward reaching the 2% inflation target, it has not fully achieved the goal yet. Now, the Federal Reserve's (Fed) comments and sentiment play an important role in defining the XAU/USD trend. The gold price could reach unprecedented highs following more precise Fed communication regarding the timing of rate cuts.
XAU/USD rose slightly during the Asian and early European trading sessions. The core Personal Consumption Expenditures (PCE) Price Index will be released today at 1:30 p.m. UTC. This data is the inflation measure favored by the Fed. PCE figures exceeding expectations could further diminish expectations for a rate cut by the Fed in the first half of the year, potentially exerting downward pressure on gold.
"We need to see significantly better data that shows inflation is cooling for prices to move above the $2,050 mark," stated Bob Haberkorn, the senior market strategist at RJO Futures.
EUR/USD Moves Sideways as the Monetary Policy Outlook Seems Uncertain
On Wednesday, EUR/USD dropped towards the critical 1.08000 level but managed to stay above it. Later, the pair recovered most of the losses after the US GDP report came out slightly weaker than expected.
EUR/USD has been rather volatile lately. Market participants think the volatility has increased due to month-end portfolio rebalancing and the possibility of traders hedging ahead of the critical US inflation data to be released later today. Fundamentally, the sentiment inside the Federal Reserve (Fed) seems to be hawkish. John Williams, the President of the New York Fed, said yesterday that US inflation has yet to reach the 2% inflation target, suggesting it may be too early to discuss rate cuts.
Joachim Nagel, the President of the Bundesbank and a European Central Bank (ECB) Governing Council member, said that the ECB needs more evidence that price developments are fully under control, suggesting that discussing rate cuts is premature. On balance, both the Fed and the ECB are similar in their stance on the interest rate path and see the timeline of future rate cuts as almost identical. Thus, there is no clear divergence in monetary policies between these central banks, explaining why EUR/USD has been moving sideways since the beginning of 2024. The established range is now 1.07000–1.09000, and only the upcoming macroeconomic statistics may provide an impulse strong enough to break out of this range.
EUR/USD was mostly unchanged in the Asian and early European trading sessions. Today, the pair may experience above-normal volatility due to the release of 2 important macroeconomic reports: German inflation data at 1:00 p.m. UTC and the US Personal Consumption Expenditure (PCE) Price Index at 1:30 p.m. UTC. The US data are more significant for the market, so EUR/USD may not move much until the report is published. In theory, higher-than-expected inflation figures will impact the euro positively. Therefore, if German inflation exceeds forecasts, while the US PCE data is lower than expected, EUR/USD should rally, possibly towards 1.09000. Otherwise, the bearish trend may restart.
Volatility in USD/CAD Will Rise Today Due to Important Reports Releases
The Canadian dollar (CAD) lost 0.36% on Wednesday, as Brent and WTI oil prices dropped after the US reported a larger-than-expected increase in crude oil stocks.
USD/CAD has been trading in a clear bullish trend since the beginning of 2024, as investors pushed back their expectations of imminent rate cuts by the Federal Reserve (Fed). At the same time, traders expect the Bank of Canada (BOC) to start cutting interest rates earlier than the Fed, pricing in a 40% probability of a 25-basis-point rate cut in April, while expecting the Fed to lower rates no earlier than June. This divergence in traders' expectations is exerting upward pressure on USD/CAD. However, the strong resistance the pair is facing at 1.36000 may be impossible to break without a solid fundamental impulse. This impulse may occur today as both countries will release important macroeconomic reports.
USD/CAD declined slightly during the Asian and early European trading sessions. Today, traders should focus on 2 critical reports at 1:30 p.m. UTC. First, Statistics Canada will publish the Gross Domestic Product (GDP) report, and the US will release the Personal Consumption Expenditure (PCE) Price Index. The US data tends to have a more sizeable impact on the market, and it may balance out any effect from the Canadian data. Overall, volatility in USD/CAD could be quite substantial. The most bullish impact on USD/CAD will be in case of weaker-than-expected Canadian GDP and higher-than-expected US PCE data. Thus, USD/CAD may move towards 1.36500. Conversely, strong Canadian GDP figures and lower US inflation numbers will put substantial bearish pressure on the pair, and the mid-term bullish trend in USD/CAD may reverse.