Gold Surges Above 2,040 as US Dollar Declines After the PCE Report
The gold (XAU) price increased by 0.42% on Thursday as the US dollar weakened after US inflation data aligned with expectations, while jobless claims figures rose.
The market interpreted yesterday's macroeconomic reports as bearish for the US dollar. Although the Personal Consumption Expenditures (PCE) Price Index aligned with market expectations, historical data were revised lower. Furthermore, the weekly Jobless Claims report revealed a more-than-expected rise, suggesting that the US job market may be finally weakening.
'Gold bulls just needed an excuse to buy, and they found it,' said Tai Wong, the New York-based independent metals analyst.
The probability of a 25-basis-point rate cut by the Federal Reserve (Fed) in May increased to 25%, while the likelihood of a similar cut in June remained at around 51%. Earlier this week, several Fed speakers noted that there was no need to cut rates now as inflation remains above the central bank's target. Although gold is traditionally considered a hedge against inflation, high-interest rates discourage investment in bullion since it does not yield any passive income.
XAU/USD was mostly unchanged during the Asian and early European trading sessions. Today, traders should focus on the release of US reports: ISM Manufacturing PMI and Consumer Sentiment at 3:00 p.m. UTC. These reports will indicate the current level of business activity and future personal spending in the US The data can potentially impact investors' interest rate expectations, which will influence the price of gold. Higher-than-expected data may push expectations for the rate cut by the Fed further into summer, and XAU/USD will likely drop—possibly below 2,039. Conversely, weaker-than-expected figures will support the case for an imminent rate cut and push XAU/USD higher—probably towards 2,065.
EUR/USD Remains Under Bearish Pressure
Initially, EUR/USD rose following the release of generally weaker-than-expected US inflation data but later lost all the gains and finished the day down by 0.3%.
Yesterday's data showed that the US Personal Consumption Expenditures (PCE) Price Index rose by 0.3% in January. Still, the annual inflation increase was the smallest in three years, supporting the prospect of an interest rate cut by the Federal Reserve (Fed) in the summer. At the same time, preliminary data from the German Federal Statistics Office showed that German inflation eased in February to 2.7%. However, core inflation, which excludes volatile food and energy prices, remained at 3.4% in February for a second consecutive month.
'Without the volatile prices for energy and food, inflation is hardly falling at all. The time is not yet ripe for ECB interest rate cuts,' said Commerzbank chief economist Joerg Kraemer.
Still, the market views the European Central Bank (ECB) as slightly more dovish than the Fed. The latest interest rate swap market data indicate that traders currently price in roughly 88 basis points (bps) worth of rate cuts by the ECB and 80 bps by the Fed by the end of 2024. Therefore, the fundamental pressure on EUR/USD remains bearish.
EUR/USD was essentially unchanged during the Asian and early European trading sessions. Today, Eurostat will publish its final February inflation figure for the eurozone. The report will come out at 10:00 a.m. UTC and may impact the exchange rate of all EUR pairs. Additionally, two US reports will be released at 3:00 p.m. UTC: the ISM Manufacturing PMI and Consumer Sentiment. These releases will likely trigger more volatility in EUR/USD. The key levels to watch are 1.07950 and 1.08400. A break below or above these levels may determine the future trend in the medium term.
Grayscale Sell-Off Triggers Bitcoin's Downward Price Correction
Bitcoin (BTC) experienced a downward correction of 3% following a significant sell-off of nearly $600 million by Grayscale Bitcoin Trust (GBTC) investors.
Bitcoin surged to over 63,500 on February 29 but then fell by 3.3% towards around 61,500. This drop coincides with the Grayscale Bitcoin Trust experiencing its second-highest daily net outflow of $600 million on February 29, according to Farside Investor data. This outflow is the second largest event for the Grayscale Bitcoin Trust, after a record $640.5 million outflow on January 22.
On 28 February, as Bitcoin hit a 2-year high of 64,000, US spot Bitcoin ETFs had a record $673.4 million net inflow. J.P. Morgan analysts warn about the 'halving euphoria' surrounding Bitcoin. They predict a price drop after the April halving event, suggesting a decline towards 42,000 instead of the anticipated rise. The Bitcoin halving event reduces the block reward from 6.25 BTC to 3.125 BTC, usually triggering the price increase due to the subsequent rise in miners' production costs. Expenses to mine a single Bitcoin are considered the minimum for Bitcoin's price, which analysts predict to double to $53,000 following the halving. However, if mining difficulty is 20% less than initially projected, this could lower production expenses, and BTC/USD may potentially drop towards 42,000 after April's halving.
BTC/USD was moving sideways during the Asian and early European sessions. The recent sell-off by GBTC may counterbalance overall inflows. While specific data for 9 other ETFs is missing, Fidelity's Bitcoin ETF had the lowest cash inflow on 29 February—only $44.8 million. This trend suggests there is a potential bearish pressure on BTC/USD.