A Series of PMI Reports May Define the XAU/USD Trend Today
The gold (XAU) price rose slightly on Wednesday on the back of strong safe-haven flows induced by geopolitical tensions in the Middle East.
Gold investors currently see a rather mixed macroeconomic environment. On the one hand, bullion is considered a hedge against economic and geopolitical uncertainties. Therefore, the continuing conflict in the Middle East supports the demand for gold. On the other hand, the appeal of non-yielding assets tends to decrease when interest rates are high. Thus, the latest Federal Reserve (Fed) meeting further decreased hopes for an early interest rate cut. The FOMC minutes released yesterday showed that most policymakers were concerned about the risks of premature interest rate cuts. Overall, traders seem to prefer to err on the side of caution and hold long positions in XAU/USD for now.
"The Fed is not going to cut rates or raise rates, so I think there is upside potential in gold," said Daniel Pavilonis, the senior market strategist at RJO Futures.
XAU/USD was rising during the Asian and early European trading sessions. Today, S&P Global will release its latest Purchasing Managers' Indices (PMI) for several major economies. The eurozone PMI is due at 9:00 a.m. UTC, the U.K. PMI at 9:30 a.m. UTC, and the US PMI is at 2:45 p.m. UTC. All reports will probably have some impact on the price of gold, but the US report may have the strongest effect. If US PMI figures show an increase in economic activity and exceed the forecast, XAU/USD may possibly drop below 2,020. Conversely, if the report reveals slowing business activity in the US, the bullish trend in gold will likely continue.
"Spot gold may retest support at $2,021 per ounce, a break below which could be followed by a drop into the $2,008–$2,017 range," said Reuters analyst Wang Tao.
The Euro Continues Rising as the US Dollar Weakens
The euro (EUR) gained 0.17% on Wednesday, rising for 6 consecutive trading sessions against the US dollar.
In the absence of any notable news releases, the US Dollar Index (DXY) continued to decline yesterday, even though the Federal Reserve's (Fed) policymakers remained concerned about the risks of cutting interest rates too soon. Indeed, yesterday's FOMC protocols showed a broad uncertainty about how long borrowing costs should remain at their current level. Overall, the minutes supported the recent message from Jerome Powell, the Fed Chairman, that the central bank isn't rushing to deliver rate cuts.
Meanwhile, some positive economic news came from the eurozone. The European Commission said yesterday that its flash estimate on consumer confidence rose by 0.6 points in February. Still, the eurozone's economic outlook remains rather bleak, and the market continues to price in roughly 100 basis points (bps) worth of rate cuts by the European Central Bank (ECB) in 2024.
EUR/USD was rising during the Asian and early European trading sessions. Today, traders will focus on the results of the S&P Global's Purchasing Managers' surveys from the eurozone at 9:00 a.m. UTC and from the US at 2:45 p.m. UTC. Both reports will likely trigger extra volatility in EUR/USD, so traders should remain cautious. The short-term technical bias remains bullish as the pair trades above the important intraday level of 1.07800.
Today's British PMI Report May Cause High Volatility In GBP/USD
The British pound (GBP) gained 0.13% on Wednesday but continued to trade below the critical 1.27000 level.
In theory, yesterday's FOMC minutes should have strengthened the US dollar because Federal Reserve's (Fed) policymakers didn't show an intent to deliver rate cuts soon. Instead, the US Dollar Index (DXY) continued to decline, probably because the traders had already adjusted their interest rate expectations to the limits. According to the CME FedWatch Tool, the market essentially sees a 0% chance of the interest rate cut in March and prices with only a 28% probability of the rate reduction in May.
Similarly, the Bank of England (BOE) isn't expected to cut the rates soon. Traders currently price in a 50% probability that the central bank will decrease the rates by 25 basis points (bps) in June. Fundamentally, the relative monetary policy between the Fed and the BOE continues to favor the British pound slightly. Any future movements in the exchange rate will depend on the incoming data.
GBP/USD was rising during the Asian and early European trading sessions. Today, traders will focus on the results of the S&P Global's Purchasing Managers surveys from the U.K. at 9:30 a.m. UTC and the US at 2:45 p.m. UTC. Both reports will likely cause increased volatility in GBP/USD and some other pairs. The short-term technical bias remains bullish as the GBP moves above the important intraday level of 1.26000.