Gold Continues to Fall After a Temporary Pause
Gold (XAU) fell below the 1,970 level on Tuesday, remaining under pressure from a rising US Dollar Index (DXY).
On Tuesday, a group of Federal Reserve officials preserved a measured approach concerning the next steps of the central bank, with an emphasis on the assessment of further economic data and the consequences of increased long-term bond yields. Chicago Fed President Austan Goolsbee highlighted the substantial progress in the fight against inflation. In contrast, Fed Governor Michelle Bowman reiterated her stance that a rise in short-term rates might be forthcoming. Diminished concerns over geopolitical tensions stemming from the Israel-Hamas conflict have led to reduced demand for gold. This comes as Israeli officials declare temporary halts in combat to accommodate humanitarian efforts. Market forecasts suggest a 15% probability of an additional rate increase by January, while the likelihood of a rate cut by March has risen to 20%, as per the CME FedWatch tool. Reduced interest rates enhance the attractiveness of non-interest-bearing gold.
XAU/USD was relatively flat during the Asian and early European sessions. Today, market participants anticipate remarks from the Federal Reserve Chair Jerome Powell, due at 2:15 p.m. UTC. It may offer investors further insights into the U.S. interest rate trajectory. Should the Fed signal readiness for more rate hikes or an extended duration of tight monetary policy, it would negatively affect gold prices. On the other hand, a gentler tone or hints at downplaying inflation risks would bolster gold's value.
ECB Should Maintain Rates Around 4% Into 2024 to Combat Inflation
The euro (EUR) lost 0.16% on Tuesday as the US Dollar Index (DXY) extended gains for a second consecutive day after last week's excessive pullback.
The European Central Bank (ECB) paused its rate hikes, prompting expectations of an upcoming rate cut, with markets pricing in a series of reductions by next year's end. However, the IMF's European Department Head, Alfred Kammer, advised maintaining the current nearly 4% deposit rate through 2024 to prevent the need for harsher measures later. Despite inflation's decline from last year's peak, the IMF cautions against underestimating persistent inflation risks, warning that labor market tightness could delay price stabilization until 2026. Energy costs, influenced by the conflict in Gaza, add to inflation concerns, though weaker-than-expected current quarter growth may temper these pressures. The IMF still anticipates a 'soft landing' for the economy over a severe recession.
EUR/USD was essentially unchanged during the Asian and early European sessions. Markets await guidance, focusing on Fed Chair Jay Powell's upcoming two-day commentary for clues on the end of U.S. rate hikes. While last week's weak jobs data suggested interest rates may have topped out, recent Fed statements caution against underestimating the ongoing battle against inflation. Investor focus may be on the Fed's perspective, but significant central bank commentary is also anticipated from Europe. Key figures, including ECB President Christine Lagarde, ECB's chief economist Philip Lane, Bundesbank's Joachim Nagel, Bank of Spain's Pablo Hernandez de Cos, and Bank of England's Andrew Bailey, will speak at different venues across Europe. Additionally, eurozone finance ministers are convening to deliberate on inflation and policy collaboration.