Gold Sets a New High on Mixed NFP Data
The gold (XAU) price set a new high on Friday, as the rising US unemployment rate heightened speculation that the Federal Reserve (Fed) might start reducing interest rates soon.
Last week, gold experienced the largest weekly increase since mid-October. XAU/USD hit a record 2,195 after the Nonfarm Report (NFP) report indicated a rise in the US unemployment rate and moderate wage increases despite faster-than-expected job growth in February.
"We still believe the same underlying premise remains, which is the combination of the expectation that the Fed is still going to cut rates later this year and dollar weakness," stated David Meger, the director of metals trading at High Ridge Futures.
He suggests that these factors continue to support the bullish trend in gold. The US Dollar Index (DXY) declined, and the 10-year US Treasury yields hit a 1-month low, making gold more affordable for international buyers. Gold had a record surge started on Tuesday, driven by signs of easing inflation and its status as a safe-haven asset. Expectations of lower interest rates bolstered the gold price by lowering the cost of holding the metal.
"With large speculators having increased net-long exposure at their fastest weekly pace in 3.5 years last Tuesday, gold is clearly in demand and not a market to short for any length of time whilst traders expect Fed cuts," noted Matt Simpson, the senior analyst at City Index.
XAU/USD paused its rally on Monday. The gold price is expected to stabilize at high levels as the market awaits the release of the February US Consumer Price Index (CPI) report on Tuesday at 12:30 p.m. UTC. Lower CPI figures could support arguments for an earlier rate cut, potentially boosting XAU/USD. Last week, Fed Chair Jerome Powell expressed increased confidence in reducing interest rates in the near future in his Congressional testimony.
"Spot gold may retrace into a range of $2,152 to $2,164 per ounce, where a consolidation occurred between 7 and 8 March," said Reuters analyst Wang Tao.
EUR/USD May Trade Sideways Ahead of Tomorrow's US CPI report
The euro (EUR) experienced a rather volatile trading session on Friday due to the release of the US Nonfarm payrolls (NFP) report but finished the day unchanged.
The US labor market statistics came out mixed. The actual NFP employment figure was higher than expected, but historical results were revised lower while the unemployment rate rose. Overall, the market considered the US NFP report bearish for the US dollar and continued to expect the Federal Reserve (Fed) to ease its monetary policy in June. 'In the short term at least, I think the dollar will be trading on a softer footing,' said Stuart Cole, the chief economist at Equiti Capital.
Still, EUR/USD haven't seen a lot of buying interest because the market doesn't view the European Central Bank's (ECB) policy as being very different from the Fed's. The ECB is expected to follow the same path as the US central bank in terms of interest rate changes. According to the latest interest rate swap market data, traders are currently pricing in roughly 100 basis points (bps) worth of rate cuts by the ECB and just under 95 bps by the Fed in 2024. Traders expect both central banks to deliver their first rate cut in June.
EUR/USD was flat during the Asian and early European trading sessions. Today, the economic calendar is rather uneventful. EUR/USD will likely move sideways as traders may refrain from opening large positions ahead of Tuesday's critical US Consumer Price Index (CPI) report. Technically, the bias remains bullish as EUR/USD continues to trade above the important 1.08800 level.
GBP/USD Reaches a 9-Month High on Divergence in Central Banks' Monetary Policies
The British pound (GBP) gained 0.40% on Friday, rising for the 6 consecutive trading session after the US Nonfarm Payrolls (NFP) report showed a rising unemployment rate, weakening the US dollar.
GBP/USD has been in a strong uptrend for more than a week now as traders speculated that the US economic data would be coming out weaker than expected, increasing the chances of an interest rate cut by the Federal Reserve (Fed) in May or June. Indeed, the market started to price in almost 74% probability that the Fed would ease its monetary policy in June after the NFP report. Meanwhile, the Bank of England (BOE) is not expected to cut its base rate until August. The divergence in monetary policy expectations between 2 central banks has pushed GBP/USD higher, currently moving near a 9-month high. However, the pair is facing strong resistance in the 1.28800–1.29000 area and may face bearish pressure if the U.K. macroeconomic data disappoints investors.
GBP/USD was declining slightly in the Asian and early European trading sessions. Today, the economic calendar is rather uneventful, so GBP/USD will likely correct downwards, possibly towards 1.28200, as bulls take profit on their long positions ahead of tomorrow's US inflation report. Furthermore, the U.K. Office for National Statistics will publish its regular Labour Force Survey tomorrow at 7:00 a.m. UTC, so traders may prefer to reposition as the data might significantly impact GBP pairs.