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Gold Declines for Second Consecutive Week; EUR/USD Near 1-Week High

Published 02/19/2024, 03:50 AM
Updated 02/20/2024, 03:00 AM

Gold Declines for the Second Consecutive Week as the Fed Seems Hawkish

The gold (XAU) price increased by 0.45% on Friday. Still, it had a second straight weekly fall as higher-than-expected inflation in the US dented hopes for an early interest rate cut by the Federal Reserve (Fed).

Friday's data revealed that US producer prices increased more than expected in January, while Tuesday's report indicated that the growth in US consumer prices didn't slow as anticipated.

"As the Fed is unlikely to cut interest rates in March, gold will probably struggle to gain much above the 2,000 level," said Everett Millman, chief market analyst at Gainesville Coins.

According to the CME FedWatch Tool, there's only an 11% chance that the Fed will ease its monetary policy in March. The market is also pessimistic about a rate cut in May, pricing in just a 33% chance for that scenario. Although gold is considered an inflation hedge, high-interest rates damage its appeal since the metal doesn't yield any passive income.

Meanwhile, the Fed sentiment isn't looking dovish. On Thursday, Raphael Bostic, Fed Atlanta President, said that more time is needed to assess the prospect of a rate cut. However, Reuters reported that on the physical front, gold premiums in India rose to more than a 4-month high this week as demand increased as jewelers were stocking up for the wedding season.

XAU/USD has been rising during the Asian and early European trading sessions. Today, the economic calendar is relatively uneventful, so the short-term bullish trend may continue. Furthermore, with a bank holiday in both Canada and the US, volatility is likely to be low. However, the reduced liquidity may trigger unexpected and sharp movements in XAU/USD.

"Spot gold may rise into a range of $2,027 to $2,031 per ounce, as it has climbed above a falling channel," stated Reuters analyst Wang Tao.

EUR/USD Is Near a 1-Week High as the ECB Doesn't Plan to Cut Rates Soon

The euro (EUR) gained 0.03% in a very volatile trading session on Friday.

Initially, EUR/USD dropped sharply following the release of the US Producer Price Index (PPI) report, which showed a rise in the prices of goods and services sold by producers that was higher than expected. However, the euro recovered all its losses on the same day after the release of a weaker-than-expected US Consumer Sentiment report. As a result, traders' expectations for the US interest rate cut decreased, yet the market still anticipates more than 100 basis points (bps) worth of rate cuts by the Fed in 2024.

Meanwhile, investors' interest rate expectations for the eurozone are not significantly different. Isabel Schnabel, a policymaker at the European Central Bank (ECB), stated on Friday that 'Europe's sluggish productivity growth may slow the fall in inflation to the bank's 2% target,' indicating that the record-high base rate might be held for longer. Overall, the divergence in monetary policies between the Fed and the ECB does not give an advantage to one currency over the other. Therefore, the EUR/USD exchange rate will continue to depend on economic data.

EUR/USD was rising slightly during the Asian and European trading sessions. Today, volatility in all Forex pairs is expected to be low due to the absence of economic releases and bank holidays in Canada and the US The technical short-term bias remains bullish as EUR/USD trades above the important intraday level of 1.07500.

Bitcoin Holds Above 52,000 as Inflows Via ETF Remain Strong

Bitcoin reached a 52,800 mark last week, while Bitcoin ETFs gained $2.2 billion in net inflows.

Bitcoin ETFs experienced another robust week. Bloomberg analyst Eric Balchunas noted that their volume surpassed the inflows of any other of the 3,400 ETFs available in the US The majority of the capital flowed into BlackRock (NYSE:BLK)'s iShares Bitcoin Trust (IBIT), which gained $1.6 billion in positive flows throughout the week, as reported by BitMEX Research. Balchunas pointed out, 'IBIT alone has taken in $5.2 billion since the beginning of the year, accounting for 50% of BlackRock's total net ETF flows, out of 417 ETFs.' The recent launch of these ETFs is considered a key contributor to Bitcoin's latest growth. The cryptocurrency has risen by 91% over the last 4 months, buoyed by market optimism following the US Securities and Exchange Commission's approval of spot Bitcoin ETFs on 10 January.

BTC/USD was essentially flat during the Asian and early European trading sessions, trading within the range of 52,200–52,400. Despite moving sideways for the past few days, the burgeoning open interest (OI) in CME Group's (NASDAQ:CME) Bitcoin futures markets reached a record $6.8 billion, according to CoinGlass signals data. This may signal upcoming volatility. A breakthrough and consolidation below the 49,000 level would indicate the start of a correction in BTC/USD. Conversely, the bullish trend will continue if the pair rebounds from this level.

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