Gold Decreases on Hawkish Comments From Fed Officials
The gold (XAU) price decreased on Friday following hawkish remarks from Federal Reserve (Fed) officials.
There is a growing likelihood that the US central bank will maintain high-interest rates throughout the year. John Williams, President of the New York Fed, mentioned last week that further rate increases aren't anticipated unless economic indicators continue to show persistent inflation. Austan Goolsbee, President of the Chicago Fed, observed that tackling inflation hasn't progressed and supported maintaining the tight monetary policy. Meanwhile, Raphael Bostic, President of the Atlanta Fed, stated that rate cuts aren't expected until year-end. This increasingly hawkish outlook could reduce the attractiveness of non-yielding assets like gold, potentially lowering XAU/USD.
Recently, geopolitical tensions between Israel and Iran have escalated. Following a suspected Israeli strike on an Iranian consulate in Syria, Iran retaliated against Israel on 13 April. Despite these tensions, a direct conflict has been avoided. Overall, investors are closely watching these developments, especially after the US approved military aid to Israel this Saturday. Increased regional tensions could potentially drive higher prices of gold and other traditional safe-haven assets.
XAU/USD was declining in the Asian and early European trading sessions. Today, the economic calendar does not feature major events that could increase market volatility. As the new week starts, investors are watching for any changes in US economic indicators and any further developments in geopolitical hotspots. The balance between hawkish US monetary policy and geopolitical risks will continue to affect the gold price.
"Spot gold may test support at $2,354 per ounce. A break could open the way towards $2,332", said Reuters analyst Wang Tao.
Euro Rises on Cooling Mideast Tensions
The euro (EUR) gained 0.10% on Friday as the US Dollar Index (DXY) slightly weakened after Iran downplayed Israel's retaliatory drone strike against it.
Iran's foreign minister said on Friday that Israel's drone attack was a 'non-event', downplaying its significance and trying to avert regional escalation. As a result, DXY and other safe-haven assets weakened, while the euro and other risk-sensitive currencies gained some ground. However, fundamentally, the euro remains under bearish pressure due to hawkish comments from Federal Reserve (Fed) officials and hotter-than-expected inflation and jobs market figures.
The market still expects the European Central Bank (ECB) to deliver its first rate cut in the summer, pricing in a 60% probability of a 25-basis-point (bps) reduction in June. François Villeroy de Galhau, Governor of the Bank of France, said on Sunday that tension in the Middle East is unlikely to drive up energy prices and should not affect the ECB's plans to start cutting interest rates in June.
"Barring surprises, there is no need to wait much longer", Villeroy told business daily Les Echos in an interview.
EUR/USD was rising slightly during the Asian and early European trading sessions. Today's economic calendar is relatively uneventful, but Christine Lagarde's speech at 3:30 p.m. UTC may potentially trigger some volatility in all EUR pairs. The market may be especially responsive to additional clues on the future path of interest rates in the eurozone. The next big event is Tuesday's S&P Global Flash Purchasing Managers' Indices (PMIs) reports. French and German PMI figures will be released tomorrow at 7:15 a.m. and 7:30 a.m. UTC. Lower-than-expected figures will confirm the expectations for an imminent rate cut by the ECB, potentially preventing EUR/USD from rising above 1.07200.
British Pound Stabilises Below a 5-Month Low of 1.24000
The British pound (GBP) plunged by 0.51% against the US dollar (USD) on Friday following the release of much worse-than-expected retail sales figures.
The U.K. Office for National Statistics reported a surprising drop of 0.3% in core retail sales for March, while the market had anticipated a 0.3% increase.
"What is clear is that the first quarter of the year has been disappointing for many retailers. Lower inflation and the first 2% cut to National Insurance, which was felt in January's pay packets, has yet to translate into a sustained recovery in spending", said Lisa Hooker, the leader of industry for consumer markets at PwC.
Predictably, weaker-than-expected consumer spending figures have increased the likelihood that the Bank of England (BOE) will deliver its first rate cut this summer. According to interest rate swap market data, traders are pricing in around a 100% probability of a 25-basis-point (bps) rate reduction by the U.K. central bank in August.
GBP/USD was essentially unchanged during the Asian and early European trading sessions. The pair may stabilise today and even attempt an upward correction as the economic calendar is relatively uneventful, allowing traders this opportunity for technical buying. The main event will be tomorrow's S&P Global Purchasing Managers' Index (PMI) report at 8:30 a.m. UTC and the US PMI at 1:45 p.m. UTC. If the U.K. figures are better than expected or surpass the US numbers, GBP/USD could potentially rally above the important 1.24200 level.