Gold Moves Sideways Ahead of the US Report
The gold (XAU) price consolidated above 2,030 and was essentially unchanged on Wednesday as US Federal Reserve (Fed) officials dismissed early rate cuts. Hawkish comments balanced out the boost in safe-haven demand following Israel's rejection of a cease-fire.
Geopolitical tensions continue to support safe-haven gold purchases, limiting XAU/USD's decline. However, uncertainty about when the Fed will start to cut interest rates is restraining the potential bullish trend in gold because high-interest rates increase the opportunity cost of owning gold. Fed officials say they need more evidence of inflation heading towards the 2% target before easing monetary policy. Still, one factor behind gold's gains is the ongoing concerns about the US regional banking sector after Moody's (NYSE:MCO) downgrade of New York Community Bancorp (NYSE:NYCB) to non-investment grade. This event highlighted concerns about regional banks' funding and liquidity. Thus, gold may get an additional boost as it performs well in times of political and economic uncertainty.
XAU/USD was declining during the Asian and early European trading sessions. The most important report to watch today is the US Jobless Claims report at 1:30 p.m. UTC. If jobless claims rise, XAU/USD may have bullish momentum. Otherwise, the sideways trend in XAU/USD may continue. 'Spot gold may retest support at $2,030 per ounce as a bounce from $2,013.70 may have completed,' said Reuters analyst Wang Tao.
EUR/USD Continues to Rise But Lacks Momentum
The euro (EUR) gained 0.16% yesterday as the US Dollar Index continued to decrease after reaching a multi-month high.
'The dollar's rally is a bit overcooked. We've gone pretty far, pretty fast, and we're kind of bouncing up against some resistance levels,' said Brad Bechtel, a global head of FX at Jefferies. Indeed, the recent strength in EUR/USD may be caused by technical factors as bears took profit on their short positions. Still, some fundamental factors also affect the currency pair as the market hasn't fully excluded the possibility of an interest rate cut by the Federal Reserve (Fed) in March. Moreover, the probability of a 25 basis point (bps) rate cut in May has risen to around 60%. Meanwhile, the European Central Bank (ECB) officials have been giving hawkish signals lately. The ECB board member Isabel Schnabel told the Financial Times that the central bank must be patient with cutting interest rates as inflation could accelerate again.
EUR/USD was rising during the Asian and early European trading sessions. Today, traders should focus on the US Jobless Claims report coming out at 1:30 p.m. UTC. Higher-than-expected figures may increase the likelihood of a US interest rate cut in May, pushing EUR/USD higher. Lower-than-expected results may help prolong the long-term bearish trend in EUR/USD, potentially bringing the pair below 1.07500. Also, the president of Richmond Fed, Thomas Barkin, will deliver two speeches today at 1:30 p.m. and 5:05 p.m. UTC. His comments might also provoke some volatility in all USD pairs.
Contradictory Data Keeps USD/JPY in a Tight Range
The Japanese yen (JPY) lost 0.16% on Wednesday despite the weakening US Dollar Index (DXY).
USD/JPY has struggled to find a clear direction for over a month. Sideways trading has prevailed as traders assess the impact of contradictory fundamental factors. On the one hand, the probability of an interest rate cut by the Federal Reserve (Fed) has declined, pushing the US dollar higher. On the other hand, traders are reluctant to sell JPY as the Bank of Japan (BOJ) remains the only central bank among the G7 countries, which is expected to raise its base rate this year. Shinichi Uchida, the BOJ deputy governor, hinted yesterday that the central bank will likely end its asset purchases soon. He also said ending negative interest rates would be equivalent to hiking short-term interest rates by 0.1%. Thus, the market currently prices in more than a 50% probability that negative rates in Japan will end in April.
USD/JPY rose in the Asian and early European trading sessions but failed to break above the critical 149.000 level. Today, the focus is on the US data. The Jobless Claims report will be released at 1:30 p.m. UTC. A better-than-expected report revealing the strength of the US jobs market will likely push USD/JPY above 149.000. If weekly unemployment claims rise faster than the market expects, the bullish trend in USD/JPY may reverse and bring the pair towards 148.000.