Gold Remains Above 2,020 As Investors Are Cautious Ahead of the US Inflation Report
The gold (XAU) price rose above 2,040 on Tuesday but later lost most of its gains and finished the day essentially unchanged.
The metals market was relatively quiet yesterday as investors remained cautious ahead of tomorrow's US Consumer Price Index (CPI) report. Overall, the sentiment on gold has turned bearish lately in response to the less dovish Federal Open Market Committee (FOMC) minutes and also due to the better-than-expected nonfarm payroll (NFP) report. However, the short-term bearish trend in XAU/USD doesn't seem to be strong. The crucial fundamental factor—market expectations of interest rate cuts—still favours gold. Traders price in a rather high probability of the first interest rate cut from the Federal Reserve (Fed) in March and expect 140 basis points (bps) worth of rate cuts by the end of December. Furthermore, the latest comments from Fed officials were more dovish than hawkish. Fed Governor Michelle Bowman stated on Monday that the US central bank's monetary policy seems 'sufficiently restrictive'.
XAU/USD was falling during the Asian and early European trading sessions. Today, there are no important macroeconomic releases scheduled. Still, traders should pay attention to the upcoming speech by FOMC member John Williams at 8:15 p.m. UTC, as it might trigger some volatility. 'Spot gold may retest support of $2,016 per ounce, a break below which could open the way towards $2,006,' said Reuters analyst Wang Tao.
EUR/USD Consolidates Above 1.09000 Ahead of Tomorrow's US CPI Report
The euro (EUR) lost 0.16% on Tuesday despite the fact that eurozone unemployment numbers turned slightly better than expected.
Yesterday's drop in EUR/USD could happen due to the rise of the US Dollar Index as traders increased their long positions in the greenback ahead of the US Consumer Price Index (CPI) report. Fundamentally, investors' expectations of the US rate hike path haven't changed much since yesterday—they expect the Federal Reserve (Fed) to deliver its first rate cut in March. 'At this point, we're pricing in a significant amount of easing from the March meeting, and the risk-reward is tilted to a degree. Maybe there are some market participants out there that look at what's priced in and are easing up on their dollar shorts that were initiated in December,' said Bipan Rai, the global head of FX strategy at CIBC Capital Markets.
Traders also aren't hawkish on the eurozone interest rate outlook and expect the European Central Bank (ECB) to cut its base rate by roughly 140 basis points by the end of 2024. Mario Centeno, the ECB policymaker, said yesterday that the central bank may start easing its monetary policy sooner than it recently thought. He suggested that officials shouldn't wait until May to make a decision, as there are no signs of additional inflation pressure.
EUR/USD was essentially flat during the Asian and early European sessions. Today's Forex calendar is relatively light, so there may not be much volatility in euro pairs. However, the scheduled speech by FOMC member John Williams at 8:15 p.m. UTC might potentially provoke some moves in EUR/USD. If Williams sounds dovish, EUR/USD may rally towards 1.09500. However, the bearish trend may restart if he makes hawkish remarks.
Important Reports for GBP Traders Will Come Out Later This Week
The British pound (GBP) lost 0.33% on Tuesday as the US dollar strengthened due to traders closing their short positions in the greenback.
GBP/USD has been trading sideways for the last month as traders attempt to navigate the flow of mixed data. On the one hand, investors' interest rate expectations are that the US central bank remains dovish, with the first-rate cut coming in March. On the other hand, U.K. macroeconomic reports have been relatively weak lately, with quarterly GDP figures showing a contraction of economic activity. The weakness of the US dollar due to the imminent easing of monetary policy has been balanced by the weakness of the British pound due to the struggling U.K. economy. However, investors still expect more rate cuts from the Federal Reserve (Fed) than from the Bank of England (BOE), which, in theory, should favor GBP/USD bulls.
GBP/USD was falling slightly during the Asian and early European trading sessions. Today's macroeconomic calendar is uneventful, so the sideways trend in the pair may persist. The most important events for GBP/USD are the US inflation report on Thursday and the U.K. inflation report on Friday. The short-term technical bias remains bearish as GBP moves below the important intraday level of 1.27300.