Home Forex Gold falls sharply after US retail sales; Euro recovers after aggressive comments from the ECB

Gold falls sharply after US retail sales; Euro recovers after aggressive comments from the ECB

by SuperiorInvest

Gold fell sharply after the release of the US retail sales report

The price of gold (XAU) hit a one-month low on Wednesday after strong economic data boosted bond and Treasury yields, reducing expectations of a rate cut by the Federal Reserve (Fed) in March .

U.S. retail sales figures rose in December, beating expectations and showing the economy’s resilience as it enters the new year. Following the release of the retail sales report, the US dollar remained near its one-month high, coinciding with a rise in benchmark Treasury yields. Bob Haberkorn, senior market strategist at RJO Futures, said market skepticism about the timing and possibility of interest rate cuts by the Federal Reserve is putting downward pressure on gold prices:

“Markets are hesitant about interest rate cuts if the Federal Reserve can cut them sooner rather than later, which is putting pressure on gold prices. With the dollar strong and cuts taking time, it is difficult for gold to maintain a upturn”.

However, he noted that geopolitical tensions are likely to continue supporting the pair and the pair is likely to stabilize around 2,000. In the early hours of Asian trading, XAU/USD rose slightly. Daniel Ghali, senior commodities strategist at TD Securities, notes in a research report that strong buying activity in China supports the gold market. Today, traders should focus on the release of the US Initial Jobless Claims report at 1:30 pm UTC. Lower than expected numbers could cause the price of gold to fall below 2,000. However, the local bearish trend in XAU/USD may reverse if the numbers are higher than expected. “Spot gold may test resistance at $2,016 per ounce, a break above which could lead to a gain to $2,045,” Reuters analyst Wang Tao said.

ECB president’s hawkish comments support the euro

The euro (EUR) fell below 1.08500 on Wednesday, but recovered after the president of the European Central Bank (ECB) delivered a hawkish message in Davos.

Yesterday’s US retail sales report caused a drop, as the release revealed the strength of the US economy and dampened expectations of an imminent rate cut by the Federal Reserve (Fed). However, Christine Lagarde, president of the ECB, stated clearly in her speech at the World Economic Forum that the central bank will probably start cutting eurozone interest rates no earlier than the summer of 2024. The ECB president also warned that the Policy should remain restrictive for as long as possible. the time needed to ensure that inflation reaches the ECB’s 2% target in the medium term. According to a Reuters poll of economists, 45% of respondents believe that interest rate cuts in the eurozone will begin in June. The long-term outlook remains dovish, with traders pricing in around 130 basis points (bps) of rate cuts by the ECB by the end of 2024. However, it is less dovish than the expected path of interest rates in USA.

EUR/USD rose during the early Asian and European trading sessions. Today, traders should focus on various US reports at 1:30 pm UTC. Initial jobless claims and Philadelphia manufacturing index reports will be the most important releases. If the data indicates that the US labor market remains strong and the economy is strong, EUR/USD may fall below 1.08700. However, lower-than-expected numbers may push EUR/USD higher, possibly above 1.09300.

GBP recovers after better-than-expected CPI data

The British Pound (GBP) gained 0.28% yesterday as the UK Consumer Price Index (CPI) came in higher than expected.

The UK CPI accelerated in December for the first time in 10 months, rising to 4.0% from 3.9% in November and denting market expectations of an early rate cut from the Bank of England (BOE). ). According to interest rate swap market data, traders are now pricing in just over 100 basis points (bps) of rate cuts in 2024, putting the BOE among the least dovish central banks. Investors don’t expect the central bank to cut rates in the first quarter, so UK government bond yields rose sharply, with the 2-year yield jumping more than 20 basis points, towards its highest level since on December 15. Not even the better-than-expected retail sales figures in the United States managed to stop the rebound in .

The British pound continued to rise during the Asian and European sessions. Today, traders should focus on the US data release. Initial Jobless Claims and Philadelphia Manufacturing Index reports will be released at 1:30 pm UTC. If the data shows the resilience of the US labor market and economy, GBP/USD may fall slightly. Worse-than-expected numbers may push EUR/USD higher, possibly above 1.27200.

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