Gold Surges on Rising Tensions and US Political Uncertainty
Gold (XAU/USD) climbed by over 1% on Friday, bolstered by escalating tensions in the Middle East and growing political uncertainty over the US presidential election.
Gold broke out above the $2,700 level on Friday, gaining bullish momentum for the fourth consecutive day. This marks the seventh day of gains out of the last eight, driving the price to a fresh record high, surpassing the $2,725 mark during American trading hours. Ongoing geopolitical tensions in the Middle East and US political uncertainty ahead of the 5 November presidential election continue to support demand for the safe-haven metal.
Furthermore, the prospect of looser monetary policies from most major central banks continues to support gold prices. Recently, the People's Bank of China (PBOC) lowered its key rates as part of its stimulus measures, and the European Central Bank (ECB) cut its interest rates for the third time this year last week. However, robust US economic data has heightened expectations for a less dovish approach from the Federal Reserve (Fed). The yield on the benchmark 10-year US government bond remains above 4%, supporting the US dollar (USD), though hardly limiting gold's upward movement.
XAU/USD continued to rise during Asian trading hours and reached $2,730. Today, the formal macroeconomic calendar doesn't feature any major events that might potentially trigger a strong reaction in the precious metals. Investors are closely monitoring developments in the Middle East, as tensions escalated after Hezbollah announced on Friday that it now enters a more intense phase in its conflict with Israel.
Euro Rebounds Slightly, but the Bearish Trend Persists
The euro (EUR/USD) gained 0.32% against the US dollar (USD) on Friday after a rally in the US Dollar Index (DXY) paused at a two-month high.
EUR/USD remains within a bearish trend but managed to rebound slightly on Friday due to technical buying as the DXY touched a major resistance near the 200-day moving average. Additionally, the People's Bank of China's (PBOC) decision to launch new stimulus measures increased risk appetite among investors and supported the euro. However, the fundamental bias for EUR/USD remains bearish. Overall, traders will likely continue to sell the rallies in EUR/USD as long as the pair continues to trade below the critical 1.95000 level.
The markets have grown more confident that the US economy remains resilient, meaning that the Federal Reserve (Fed) will be reluctant to cut interest rates too aggressively. ‘Speculation that the Fed could follow September's 50-basis-point (bps) rate cut with another similarly sized move has been blown away by a round of data pointing to a resilient US economy’, wrote Jane Foley, head of FX strategy, at Rabobank in London. Also, the European Central Bank's (ECB) message to the market has been getting progressively more dovish lately, as the eurozone economy faces challenges while inflation has dropped below the central bank's target. Furthermore, markets have started to price in Donald Trump's victory in the upcoming presidential election, which is generally viewed as being dollar-positive, at least in the short term. All these factors put downward pressure on the euro.
EUR/USD was essentially unchanged during the Asian and early European trading sessions. Today's macroeconomic calendar does not feature any major events that could disrupt the markets. Speeches by FOMC members Lorie Logan and Neel Kashkari, due at 12:55 p.m. and 5:00 p.m. UTC, may add to the volatility. Otherwise, the pair is likely to move slightly higher in the short term, but the declining 10-day exponential moving average will likely cap the gains.
Unexpectedly Strong U.K. Data Supports the British Pound
The British pound (GBP/USD) rallied by 0.32% on Friday after data showed surprisingly strong U.K. consumer spending last month, offering some reassurance about the strength of the economy.
According to official data, British retail sales unexpectedly increased in September, contradicting indications that consumers were pessimistic about potential tax increases ahead of the government's upcoming Budget later this month. The sales volume rose by 0.3% in September, exceeding economists' projections for a 0.3% monthly decline. ‘After a period during which elevated inflation caused consumers to spend more and receive less, we are pleased to see that we are back on track for seeing higher spending accompanied by an increase in the volume of goods purchased’, said Joshua Mahony, strategist at Scope Markets.
With markets still uncertain about the possibility of a rate cut at both the November and December meetings of the Bank of England (BOE), improved spending indicators could lead to a slight reduction in dovish expectations. Together with stronger growth in July and August, sales increased by 1.9% in Q3, the largest increase since mid-2021. At the same time, the BOE is expected to lower interest rates at least once more this year, likely in November, but with a possibility of a further decrease in December.
GBP/USD has been trading sideways during Asian and early European trading hours. The most important event for the pound will be the U.K. Manufacturing and Services Purchasing Managers' Index (PMI) for October. A higher-than-expected reading should be taken as bullish for GBP/USD, while softer data may put bearish pressure on the pair.