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Gold Rises Ahead of US Employment Data; Euro Stable Amid Political Uncertainty

Published 06/20/2024, 04:37 AM

Gold Is Rising Ahead of US Jobless Claims

On Wednesday, the exchange rate of XAU/USD experienced fluctuations between 2,325 and 2,335 due to the absence of significant reports. Prior to the close of the trading session on Wednesday, gold was 0.04% lower than the previous day's closing price.

Based on recent data indicating moderation in the labour market and price pressures, the US Federal Reserve is seeking further confirmation that inflation is abating. The central bank is, therefore, proceeding with caution as it moves towards what is expected to be one or more interest rate cuts by the end of the year. The CME FedWatch model indicates a 67% probability of a rate reduction in September, an increase from 61.5% prior to the release of the Retail Sales report in May. On Tuesday, Austan Goolsbee, President of the Chicago Federal Reserve Bank, described the latest consumer price inflation figure as 'excellent' and expressed his expectation that inflation could continue to cool this year.

The XAU/USD pair was trading higher during the Asian and early European sessions on Thursday, reaching 2,340. This was before the release of the weekly US Jobless Claims report at 12:30 p.m. GMT today, which is expected to provide further insights into consumer spending and overall economic strength. A lower-than-expected reading from the upcoming data is likely to be seen as negative for XAU/USD, as it may indicate weaker demand for gold. Conversely, a reading higher than the market's expectations could be interpreted as positive for the precious metal, suggesting that economic conditions remain strong.

Euro was Stable as US Markets Were Closed Yesterday

The euro (EUR) was essentially unchanged on Wednesday as the US markets were closed for the holiday.

French political uncertainty continues to keep the euro on edge. Investors are concerned that the formation of a government led by Marine Le Pen’s National Rally (RN) after the parliamentary elections could trigger financial distress in the European Union’s (EU) second-largest economy. The RN has promised a lower retirement age, energy price cuts, increased public spending, and the ‘France first’ economic policy in its manifesto.

The near-term outlook for the US dollar has become uncertain as slower-than-expected US Retail Sales growth in May has increased market expectations for Federal Reserve (Fed) rate cuts in the September meeting. The CME FedWatch tool indicates a 67% chance of a rate cut in September, up from 61.5% before the May Retail Sales report. Additionally, the tool suggests that policymakers may announce another rate cut at the November or December meetings, which contradicts the Fed’s dot plot, where officials indicated only one rate cut this year.

EUR/USD declined during the Asian and early European trading sessions. Today, traders are focusing on the US Building Permits report, scheduled for 12:30 p.m. UTC. If the figures exceed expectations, it could adversely affect EUR/USD, possibly driving the price below the 1.07300 mark. Conversely, lower-than-expected Building Permits could sustain the current short-term upward correction in EUR/USD.

USD/CAD Holds Steady Above 1.3700 as BOC Remains Cautious on Rate Cuts

The Canadian dollar (CAD) was essentially unchanged on Wednesday and continued to trade above the important 1.37000 level as traders digested the minutes from the latest Bank of Canada (BOC) meeting.

The BOC Summary of Deliberations released yesterday indicated that Canada's central bank was uncertain whether inflation would continue to slow. Consequently, members of the BOC's governing council agreed to postpone rate cuts for an additional month, which they eventually implemented on 5th June. Currently, investors are pricing in a 58% chance that the central bank will further ease in July. Meanwhile, the market does not anticipate the Federal Reserve (Fed) to cut rates until September, suggesting sustained bearish pressure on USD/CAD in the near term. However, there are limits to how much Canada's monetary policy can diverge from that of the US, given their strong economic ties. Traders are therefore not expecting significant movements in CAD pairs until Canada's May inflation report is released on 25th June.

"We're focusing on next week's inflation report as the primary catalyst to potentially reintroduce volatility in the market," commented Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.

USD/CAD was rising slightly during the Asian and early European trading session. Today, the focus is on the US data. A string of macroeconomic reports—Jobless Claims, Building Permits and Philadelphia Manufacturing Index—will be released at 12:30 p.m. UTC. The simultaneous release of these reports may have a noticeable impact on all USD pairs, including USD/CAD. If the data comes out better than expected, the pair may rise towards 1.37700. Conversely, worse-than-expected results may trigger a sell-off in USD/CAD, pulling the pair below 1.36800.

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