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Gold Falls Post US Macroeconomic Data; JPY Drops on BOJ July Minutes

Published 09/28/2023, 05:39 AM
Updated 02/20/2024, 03:00 AM

On Wednesday, the Turkish lira (TRY) was the best-performing currency among the 20 global currencies we track, while the Brazilian real (BRL) showed the weakest results. The US dollar was the leader among majors, while the Australian dollar (AUD) underperformed.Changes in Exchange Rates on 27 September

Gold Fell Sharply After the Release of Strong US Macroeconomic Data

The gold price plunged by 1.36% on Wednesday after upbeat US macroeconomic data raised the chances that the Federal Reserve (Fed) may lift the base rate again.

Orders for US durable goods rose higher than expected in August as business equipment spending increased. In addition, the Energy Information Agency reported that crude oil stocks declined more than anticipated last week, pushing US crude oil prices toward a one-year high. The combination of strong capital spending and high energy costs increased the probability of another rate hike from the Fed in the December meeting. Currently, the market prices in around 42% chance of a rate hike, according to the CME FedWatch tool. ‘As long as the narrative remains “higher-for-longer”, it's going to continue pressuring precious metals,’ said Ryan McKay, the commodity strategist at TD Securities.

XAU/USD rose slightly in the Asian and early European sessions, mostly due to a technical correction after yesterday's severe drop. At 12:30 p.m. UTC today, traders await the US Q2 Gross Domestic Product (GDP) growth figures and Weekly Jobless Claims report. Both reports are due at 12:30 p.m. UTC. If figures are higher than expected, investors will expect more rate hikes, and XAU/USD may continue falling.

"Spot gold may stabilize around a support of 1,873 USD per ounce and bounce towards a range of 1,881 to 1,886," said Reuters analyst Wang Tao.

On the physical gold market, the sentiment is also bearish. SPDR Gold Trust (NYSE:GLD), the world's largest gold-backed exchange-traded fund, said its holdings fell to 872.77 tons, the lowest since August 2019.

Traders Expect the BOJ to Intervene and Protect JPY From Depreciation

The Japanese yen (JPY) fell sharply after Wednesday's release of the Bank of Japan's (BOJ) July meeting minutes. The report showed policymakers decided to keep ultra-loose monetary policy but didn't agree on when to end negative interest rates.

Yesterday's US Durable Goods Orders report was much stronger than expected. It revealed a resilient US economy and fuelled expectations of more rate hikes, supporting the US dollar. In addition, according to the latest protocols from the last meeting, the BOJ isn't ready to start monetary policy tightening. Thus, a robust US economy and a dovish BOJ stance have a strong bullish impact on USD/JPY. The pair is reaching a psychologically important 150.000 level, close to a multi-decade high. When USD/JPY approached 150.000 in 2022, the BOJ intervened to support the currency. Traders think another intervention is possible if the Japanese yen continues to depreciate.

USD/JPY was falling slightly in the Asian and early European sessions. Today's key event for JPY traders is the Tokyo Consumer Price Index (CPI) release at 11:30 p.m. UTC. Higher-than-expected figures might trigger a strong sell-off in USD/JPY.

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