Gold Rises Despite Strong US CPI Numbers as the Conflict in the Middle East Escalates
The gold (XAU) price gained 0.23% in a very volatile trading session on Thursday.
Initially, XAU/USD dropped to a 1-month low as US inflation figures were higher than the forecast. However, the pair regained most of the losses during the late American trading session due to escalating tensions in the Middle East. Gold traders need to take geopolitical risks into consideration. Even though the fundamental pressure on gold turned more bearish due to higher-than-expected US Consumer Price Index (CPI) numbers, the news from the Middle East about the US launching military strikes against Houthi positions in Yemen pushed XAU/USD up.
The market now worries that the Federal Reserve (Fed) won't deliver a first-rate cut at the March monetary policy meeting. Indeed, Fed officials remain hawkish. For example, Cleveland Fed president Loretta Mester said it would likely be too soon to cut the base rate in March. Richmond Fed chief Tom Barkin added that gains on inflation have been too narrowly focused on goods. Therefore, it seems unreasonable to expect the price of gold to increase. However, political instability in the Middle East increases gold's safe-haven appeal and supports the bullish trend in XAU/USD.
Gold was rising during the Asian and early European trading sessions as the US and the U.K. launched military strikes against locations linked to the Houthi movement in Yemen. Today, XAU/USD may remain volatile as traders attempt to balance between bearish fundamental data and bullish geopolitical news. Today's main event is the publication of the US Producer Price Index at 1:30 p.m. UTC. Higher-than-expected figures should exert downward pressure on XAU/USD, while lower-than-expected results may push the gold price higher. 'Spot gold may test resistance at $2,043 per ounce, a break above which could lead to a gain into the $2,047–$2,052 range,' said Reuters analyst Wang Tao.
EUR/USD Briefly Touches a 10-Day High Despite High US Inflation Figures
The euro (EUR) experienced a very volatile trading session on Thursday but finished the day essentially unchanged.
The US Consumer Price Index (CPI) came out above the economists' forecast and fuelled speculation that the Federal Reserve (Fed) may not cut the rates as soon as traders expected. Still, the market continues to price in rate cuts of 150 basis points (bps) from the Fed in 2024 but sees a smaller chance of the first rate cut in March. At the same time, Christine Lagarde, the President of the European Central Bank (ECB), explicitly stated that she does not consider more rate hikes. 'I think that rates, barring any further shocks or unexpected data, will not continue to go up. And if we win our fight against inflation, and if we are certain that inflation will indeed be at 2%, at that point, rates will start to go down,' she said. For now, investors' expectations of interest rate cuts from the Fed and the ECB are more or less balanced. Therefore, it becomes extremely important to monitor macroeconomic data releases as they could shift expectations, widening the divergence between the US and eurozone monetary policies.
EUR/USD was falling slightly during the Asian and early European trading sessions. Today, traders should focus on the release of the US Producer Price Index at 1:30 p.m. UTC. If the data supports yesterday's CPI data and figures come out higher than expected, EUR/USD may plunge sharply, possibly below 1.09000. However, lower-than-expected results may slightly encourage EUR bulls.
Flows to Safe-Haven Assets Brought Down AUD/USD
The Australian dollar (AUD) declined by 0.16% on Thursday as rising inflation in the US and tensions in the Middle East made investors adopt a risk-off approach.
AUD/USD has been in a downtrend since the beginning of the year, but the bearish momentum has weakened lately. Still, the latest macroeconomic data from the US and geopolitical news from the Middle East don't allow AUD bulls to take the upper hand. Higher-than-expected US inflation numbers raised doubts that the Federal Reserve (Fed) will start to cut rates in March. Meanwhile, political instability in the Middle East favors the US dollar as a traditional safe-haven currency.
Earlier this week, the Australian Bureau of Statistics revealed that the inflation rate dropped to a 2-year low, widening the gap in interest rate expectations between the Fed and the Reserve Bank of Australia (RBA). Indeed, the interest rate swap market data indicates that investors expect 150 basis points (bps) worth of rate cuts from the Fed and only 50 bps cuts from the RBA in 2024. Theoretically, the bullish trend in the Australian dollar is stronger, at least in the long term.
AUD/USD was rising during the Asian and early European trading sessions. The main event today is the publication of the US Producer Price Index (PPI) data at 1:30 p.m. UTC. Higher-than-expected figures may provoke only a slight sell-off in AUD/USD, as the 0.66600–0.66800 range currently acts as a very strong support area. Alternatively, lower-than-expected numbers give bulls a chance to retest 0.67200.