Gold's Rally Stops on the Back of Mixed US Data
The gold (XAU) price is on track for its first weekly decrease since mid-February following the release of mixed US data.
Gold dropped below 2,160 on Thursday, facing its first decline in 4 weeks, due to unexpectedly strong US inflation data that shifted expectations for rate cuts by the Federal Reserve (Fed) to a later time. Precious metals also suffered from the sharp recovery of the US dollar and Treasury yields after reports showed that US producer and consumer prices exceeded forecasts in February. Other data indicated a recovery in US retail sales in the last month, although figures were lower than the forecast. Moreover, the Jobless Claims report indicated a decrease in unemployment claims.
"It's hard to ignore the upside surprise from inflation now I don't see any fresh catalysts to propel gold above a major resistance of 2,200 in the short term," said Hugo Pascal, the precious metals trader at InProved, when commenting on the US inflation data's impact.
He suggested that current market conditions and inflation make significant short-term increases in XAU/USD unlikely as the stronger US dollar raises the cost of gold for holders of other currencies. The Fed is expected to maintain current rates in March and May, and the chance of the rate cut has decreased from 74% to around 60% after stronger-than-anticipated US reports. Now, the market predicts around 3 rate cuts in 2024, compared to previous forecasts of 3 to 4 reductions.
XAU/USD was rising in the Asian and early European trading sessions. Investors await the upcoming US Michigan Consumer Sentiment report at 2:00 p.m. UTC today. Lower-than-expected figures could boost XAU/USD, potentially pushing its price towards 2,180. However, if the data surpasses expectations, the downward trend in XAU/USD will likely continue.
"Spot gold is biased to bounce into a range of $2,169–$2,175 per ounce, as it stabilized again around support at $2,152," said Reuters analyst Wang Tao.
The Euro Declined as Doubts Over Fed Rate Cuts Emerged
The euro (EUR) lost 0.59% on Thursday after the US macroeconomic data came out mixed but showed accelerating producer inflation.
Although US retail sales in February were lower than expected, the number of jobless claims declined, and the Producer Price Index (PPI) jumped sharply. Overall, the data questions the Federal Reserve's (Fed) plan to cut its base rate in the near term. Thus, the data strengthened the US dollar. Still, the market expects the Fed to deliver the rate cut in June, even though the probability has dropped towards 60% from around 70% prior to yesterday's data publication.
Meanwhile, European Central Bank (ECB) officials continue to plan on delivering a rate cut in June but offer a different stance about the monetary policy path in 2024. Klaas Knot, the head of the Dutch central bank, said he anticipated 3 cuts in 2024, slightly fewer than what the financial markets are pricing in. At the same time, Yannis Stournaras, Greek central bank chief, told Bloomberg that he backed the first reduction in June, the second in July, and 2 more cuts by the end of the year. Fundamentally, the pressure on EUR/USD remains bearish as the market is pricing in more rate cuts from the ECB than from the Fed in 2024. According to the interest rate swap market data, investors expect roughly 88 basis points (bps) worth of rate cuts by the ECB and just over 75 bps reductions by the Fed.
EUR/USD continued to decline slightly during the Asian and early European trading sessions. Today, the US will release more data: the Empire State Manufacturing Index at 12:30 p.m. UTC and the Consumer Sentiment Index at 2:00 p.m. UTC. If the figures are stronger than expected—revealing an increase in business activity and consumer confidence—EUR/USD will almost certainly continue to fall, probably towards 1.08000. Otherwise, the short-term bearish trend in EUR/USD may pause or even reverse. The key level to watch is 1.09000—a break above the level will open the way towards 1.09600.
Mixed US Data Strengthened USD/JPY
The Japanese yen lost 0.39% on Thursday after the US dollar jumped higher due to stronger-than-expected Producer Price Index (PPI) data.
USD/JPY has been in a major uptrend since the year began. While the latest US macroeconomic data continues to strengthen USD/JPY, the market may be preparing for a downward correction. Kazuo Ueda, the Bank of Japan (BOJ) Governor, has repeatedly signaled that the decision to launch the stimulus program depends on wage inflation. Still, the progress made in the annual wage talks certainly increases the likelihood that the central bank will finally increase its short-term interest rate target, terminate the bond yield control policy, and stop purchasing risky assets such as exchange-traded funds. Thus, if wage negotiations deliver strong results for workers, it will increase the chances of the regulator ending its decade-long, ultra-loose monetary policy. The final decision will be released on 19 March, but the bearish impact on USD/JPY may already emerge today.
USD/JPY was relatively flat during the Asian and early European trading sessions. The market will focus on the preliminary results of wage negotiations today. However, the publication of the US data—the Empire State Manufacturing Index at 12:30 p.m. UTC and the Consumer Sentiment Index at 2:00 p.m. UTC—might also trigger volatility in USD/JPY. If the figures are stronger than expected and show an increase in business activity and consumer confidence, USD/JPY may rise above 148.600. Otherwise, the bullish trend in the pair will pause and may even reverse.