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Gold Edges Up Slightly, Euro Rises on Strong PMI Data, GBP Rebounds

Published 05/27/2024, 04:46 AM

Gold Slightly Corrected Upwards After a 3% Decline

The gold (XAU) price fell 3.33% over the last week. However, XAU/USD rose slightly from 2,330 towards 2,340 on Friday.

Gold fell too rapidly last week, so an upward correction, which happened on Friday, was expected. Market participants anticipate gold testing the 2,330 support level. Surprisingly, the US Durable Goods Orders data, released on Friday, didn't have a strong effect on XAU/USD. Still, the US Dollar Index (DXY) dropped by 0.41% to 103.97. This decline followed weaker US durable goods revisions and reduced one- and five-year inflation expectations in the University of Michigan report.

Friday's data did little to boost investors' optimism about the Federal Reserve's (Fed) potential loosening of its monetary policy. Hawkish comments from Fed officials may lead to speculation about a delay in US rate cuts this year. According to the CME FedWatch Tool, investors now see a 50% chance of a rate cut by the Fed in September, down from 64% a week ago. Additionally, investors await the US Gross Domestic Product (GDP) report annualized for Q1, which will be released this Thursday. Stronger-than-expected readings could bolster the greenback in the near term and bring down XAU/USD.

Gold has slightly corrected upwards following its recent decline. Today, the market is quiet due to the US and U.K. bank holidays. Therefore, XAU/USD may decline towards 2,353 over the course of the day. This week's main event is Friday's release of the core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure. This data will be crucial for assessing the inflation pace and indicating the future US interest rate trajectory.

Strong PMI Data Pushed Euro Higher

The euro (EUR) gained 0.28% on Friday, supported by the stronger-than-expected preliminary eurozone Purchasing Managers' Index (PMI) report for May and profit-taking on the US dollar (USD).

EUR/USD rose as expectations for a rate cut by the European Central Bank (ECB) slightly slipped. The rate cut in June is still priced in with over 80% probability, but the projected easing by the end of the year has decreased towards 55 basis points (bps), down from nearly 70 bps last week. This outlook supports EUR/USD. Traders will closely watch eurozone inflation data on Friday for indications of the inflation pace in Europe. A rise in services inflation above 4% could prompt the ECB to skip the rate cut in June, which would be positive for the euro. However, ECB policymaker Piero Cipollone stated on Sunday that recent data supports a June rate cut. ECB President Christine Lagarde also expressed confidence in controlling eurozone inflation and indicated a likely rate cut next month.

Stronger US economic data and hawkish comments from Federal Reserve (Fed) officials might spark speculation of a delay in easing US monetary policy this year. According to the CME FedWatch Tool, investors have now priced in a 50% chance of a rate cut in September, down from 64% a week ago. Investors also await the US Gross Domestic Product (GDP) for Q1 on Thursday. A stronger reading and other better-than-expected economic data could boost the US dollar in the near term. On Friday, US Durable Goods Orders figures increased by 0.7% month-over-month in April, following a revised 0.8% in March, which was stronger than the expected −0.8%.

EUR/USD moved sideways during the Asian and early European trading sessions. Today, volatility is likely to be relatively low as there are no major news releases, while the U.K. and US banks will be closed due to holidays. EUR/USD may continue its downward trend as ECB officials have sounded dovish lately, and the upcoming rate cut in June is widely expected.

GBP Rebounded Despite Weak UK Economic Data

The British pound (GBP) rebounded towards 1.27400 despite weaker-than-expected Retail Sales figures and preliminary Purchasing Managers' Index (PMI) data.

The U.K. Office for National Statistics (ONS) reported a sharp decline in retail sales numbers for April. The data is a leading inflation indicator—it reflects the current status of consumer spending, a major driver of economic growth. A substantial decline suggests that the high U.K. interest rates have significantly impacted consumer spending, and price pressures will ease further. Weaker economic data could encourage the Bank of England (BOE) to start easing monetary policy earlier than previously expected.

Last week, the US Dollar Index (DXY) strengthened as robust US economic data further decreased expectations for interest rate cuts by the Federal Reserve (Fed). The latest Federal Open Market Committee (FOMC) meeting minutes showed that some officials were willing to consider tightening monetary policy again if inflation spikes. As a result, markets now expect the first rate cut this year only in December, shifting it from September. Still, the US dollar (USD) slipped against most major currencies on Friday as traders booked profits following recent gains.

Today, GBP/USD was essentially unchanged during the Asian and early European trading sessions as the U.K. and US markets were closed due to bank holidays. Thus, trading volumes today will be low, and thin liquidity may heighten price movements if unexpected news emerges. Therefore, traders should remain cautious when trading today.

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