Gold Is Rising for the Fifth Day, Reaching an All-Time High
The gold (XAU) price reached a new high as weak US economic data strengthened expectations for a rate reduction by the Federal Reserve (Fed) in June.
The US Personal Consumption Expenditures (PCE) Price Index showed a moderate rise in inflation in February, reinforcing expectations that the Fed will start reducing interest rates in June. This development is particularly beneficial for gold as lower interest rates reduce the opportunity cost of holding non-yielding bullion. After the release, Fed Chair Jerome Powell commented that the current US inflation figures align with the Fed's objectives, signaling a potential shift in policy direction soon. According to the CME Group's (NASDAQ:CME) FedWatch Tool, there is a 69% likelihood of the Fed cutting its interest rates in the upcoming June meeting.
The ongoing conflict between Russia and Ukraine has seen recent escalations. Additionally, tensions in the Middle East have no signs of easing. These facts also support the bullish trend in gold. However, China's manufacturing sector expanded for the first time in 6 months, resulting in a positive shift in the global risk sentiment. This may put slight downward pressure on gold.
On Friday, exchanges were closed due to the Good Friday holiday, so gold wasn't traded. Thus, the impact of the news may come into full force today. XAU/USD rose for five consecutive trading sessions, setting a new high above 2,265 during the early European trading session. Investors are now turning their attention to the upcoming US ISM Manufacturing Purchasing Managers' Index (PMI) report at 2:00 p.m. UTC today. Lower-than-expected figures could boost XAU/USD, potentially pushing its price closer towards 2,280. On the other hand, if the data surpasses expectations, XAU/USD may correct downwards.
"Spot gold may climb into a range of $2,275–$2,288 per ounce, driven by the technical wave 5," said Reuters analyst Wang Tao.
EUR/USD Remains Under Downward Pressure Despite Slowing US Inflation
The euro (EUR) gained 0.06% on Friday, but trading activity remained muted due to the Good Friday holiday in the US
The US Bureau of Economic Analysis report showed that inflation in the US slowed in February, keeping a possibility that the Federal Reserve (Fed) will cut interest rates in June.
"Core services inflation is slowing and will likely continue throughout the year. By the time the Fed meets in June, the data should be convincing enough for them to commence its rate normalization process," said Jeffrey Roach, the chief economist at LPL Financial.
As a result, investors anticipate three interest rate cuts by the Fed this year and are pricing in a 66% probability of the first 25-basis-point (bps) rate cut in June.
At the same time, the European Central Bank (ECB) officials have been providing some dovish signals. The ECB Governing Council member Robert Holzmann said the regulator could lower its key interest rate before the Fed does. Also, Yannis Stournaras, the Governor of the Bank of Greece, said that the ECB could cut rates by 100 bps this year. Overall, the fundamental pressure on EUR/USD remains bearish as the eurozone's economy underperforms relative to the US once, and the ECB seems more dovish than the Fed.
EUR/USD was falling during the Asian and early European trading sessions. Today, traders should focus on the publication of the US ISM Manufacturing Purchasing Managers' Index (PMI) data at 2:00 p.m. UTC. Because the interest rate differential between the eurozone and the US is relatively small, new data could significantly shift the balance in terms of monetary policy expectations. Higher-than-expected PMI figures will lower the probability of an interest rate cut by the Fed in June, putting downward pressure on the EUR/USD. Conversely, lower-than-expected figures might trigger an upward correction. Key levels to watch are 1.07500 and 1.08000.
USD/JPY Remains Near a Multi-Decade High
The Japanese yen (JPY) gained 0.04% on Friday amid very low trading activity due to the Good Friday holiday in the US
USD/JPY has been trading sideways for over a week after rising into a critical resistance zone of 151.000–152.000 range. The decision by the Bank of Japan (BOJ) to raise its base rate by 10 basis points (bps) and end its ultra-loose monetary policy has failed to support the national currency. However, investors are reluctant to place large long positions in USD/JPY at this point due to the fear of interventions by Japanese authorities. Previously, the BOJ intervened in the currency market in September and October 2022 as the Japanese yen slipped towards a 32-year low of 152 against the US dollar. Indeed, Japanese Finance Minister Shunichi Suzuki said,
"We will watch currency market developments with a strong sense of urgency and will respond appropriately against excessive moves without ruling out any options."
Fundamentally, the pressure on USD/JPY may be turning bearish as rate cuts by the Federal Reserve (Fed) are already largely priced in, while the Japanese authorities are ready to intervene and prevent any further JPY depreciation.
USD/JPY was essentially flat during the Asian and early European trading sessions. Today, traders should focus on the publication of the US ISM Manufacturing Purchasing Managers' Index (PMI) at 2:00 p.m. UTC. If the report is stronger than expected, USD/JPY may slightly rise—probably no higher than 151.800. However, USD/JPY may experience a sharp downward correction, possibly towards 150.000, in case of weaker-than-expected PMI figures.