Gold Continues to Set New All-Time Highs Despite Strong US Economic Data
Gold (XAU) prices surged by 1.75% on Friday due to strong speculative buying and continuing purchases by central banks, as the Federal Reserve (Fed) is expected to cut interest rates even though inflation remains high.
XAU/USD reached a new all-time high last Friday despite a Nonfarm Payroll (NFP) report that was stronger than expected.
"'There are too many capital inflows, and everybody is chasing the market high, which is helping to elevate gold prices along with strong central bank purchases and speculative buying," said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
Indeed, the price of gold is currently being driven by a combination of 2 important factors. The first is the uncertainty surrounding the future of the US dollar. The growing US national debt is undermining its status as a global reserve currency, prompting central banks to diversify their reserves by buying physical gold and other precious metals. The second factor is investors' strong belief that the Federal Reserve will eventually cut its base rate, even as inflation remains persistent. Although the latest NFP report has lowered the probability of a 25-basis-point (bps) rate cut in June to 49%, the market still anticipates roughly 60 bps worth of cuts in 2024. Gold, traditionally seen as a hedge against inflation, usually increases in value during periods of falling interest rates and rising consumer prices.
XAU/USD was rising during the Asian and early European trading sessions. Technically, gold may continue to move higher without any notable news. Meanwhile, Reuters reported that demand for physical gold among Indian retailers remained modest last week as a strong rally in domestic prices put off buyers.
"Spot gold may test the resistance zone of $2,367 to $2,376 per ounce; a break above could open the way towards the $2,389–$2,403 range," said Reuters analyst Wang Tao.
The Euro Rebounds Despite Strong US Jobs Data
EUR/USD declined on Friday due to stronger-than-expected US nonfarm payroll (NFP) data, which bolstered USD. However, the euro rebounded at the day's end.
The strong US NFP report for March showed higher-than-expected numbers of jobs created, prompting investors to revise their expectations for Federal Reserve (Fed) interest rate cuts. Initially, the market expected the first rate cut in June and 3 more reductions throughout 2024. the positive job data forced investors to reassess their projections, implying the chance for fewer reductions than previously expected. This outlook keeps US Treasury yields high, supporting the US dollar and placing downward pressure on EUR/USD.
The global stock market is currently showing positive dynamics due to decreasing tensions in the Middle East. This respite could diminish the appeal of the safe-haven US dollar, prompting investors to reduce their activity ahead of this week's significant US data releases. US inflation figures and the FOMC meeting minutes will be released on Wednesday. Furthermore, the upcoming European Central Bank (ECB) meeting could significantly influence the EUR/USD trend. Meanwhile, expectations of a rate cut in June by the ECB, underscored by last week's mild eurozone consumer inflation data, might exert downward pressure on the euro.
EUR/USD was trading sideways during the Asian and early European sessions. Today's trading session will likely remain relatively calm as the economic calendar is rather uneventful. Most traders will be preparing for the US Consumer Price Index and FOMC data. The short-term technical bias remains neutral as EUR/USD continues to move within the narrow 1.08230–1.08480 range.
A Risk of Interventions Rises as USD/JPY Moves Towards Multi-Decade Highs
The Japanese yen (JPY) lost 0.18% on Friday as the US dollar continued to rise after the US Bureau of Labour Statistics reported a higher-than-expected rise in nonfarm payroll (NFP) figures.
The US job market expanded rapidly in March, with hourly wages rising and the unemployment rate falling, suggesting that the US economy remains resilient.
"The apparent absence of any cracks developing on the demand side should lessen the urgency to ease policy, and we are pushing back our call for the first Fed cut from June to July," said Michael Feroli, chief US economist at JPMorgan.
Indeed, the probability of a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) in June dropped below 50% after the NFP report, pushing USD/JPY above 151.50, just a few pips away from a fresh multi-decade high.
Meanwhile, Japan has also been showing some upbeat data lately. Household spending fell less than expected in February, while fixed investment by large companies expanded at 4% in Q1. The strong macroeconomic statistics convince investors that the Bank of Japan (BOJ) may hike its base rate by 17 bps in 2024. Furthermore, the risk of direct currency intervention from the Japanese authorities exerts downward pressure on the USD/JPY exchange rate. Takehiko Nakao, the former Vice Finance Minister for International Affairs, said that Japanese authorities could intervene 'at any time' to prevent the national currency's sharp decline. 'The yen has weakened severely against the US dollar. It's undesirable,' he said.
USD/JPY was rising during the Asian and early European trading sessions. The economic calendar is rather uneventful today, so the established bullish trend in the pair may continue. However, the resistance is very strong, and the risk of intervention may keep bulls cautious. The next event that could affect the USD/JPY trend is the release of Japan's Consumer Confidence report at 5:00 a.m. UTC on Tuesday.