Today's CPI report may define the XAU/USD trend
The price of gold (XAU) fell 0.22% on Monday in a relatively calm trading session as traders refrained from placing large orders ahead of the US Consumer Price Index (CPI) report. from today.
Jim Wyckoff, senior analyst at Kitco Metal, said interest rate cuts would likely be delayed until the second half of the year, as U.S. economic data has been too strong lately to expect a rate cut by May. He also added that there is limited buying interest in gold due to the recent stock market rally. According to the CME FedWatch tool, the probability of a 25 basis point (bp) interest rate cut in May is now less than 50%. High interest rates put downward pressure on gold as the metal does not generate any passive income.
“Pending any rate cuts from the Federal Reserve (Fed), strong physical demand and official sector purchases are projected to lift prices to an average of $2,200 per ounce next quarter,” said Bart Melek, head of commodity strategies at TD Securities.
It remained essentially stable during the Asian and European trading sessions. Today, the most important event is the US CPI report at 1:30 pm UTC, which could offer insight into the Federal Reserve's plans for interest rates. A Reuters poll of economists projects a 0.2% monthly rise in January CPI, while underlying figures are expected to rise 0.3%. Figures above these forecasts will almost certainly reduce the likelihood of an interest rate cut this spring, which could push XAU/USD below 2,000. Conversely, lower-than-expected CPI numbers will likely trigger a rally in XAU/USD, possibly towards 2,050.
“Spot gold may retest the support at $2,012 per ounce, a break below which could open the way towards $2,002,” said Reuters analyst Wang Tao.
ECB Officials Appear to Favor Imminent Interest Rate Cuts
The euro (EUR) lost 0.1% in a relatively volatile trading session on Monday, as market participants repositioned ahead of the US Consumer Price Index (CPI) report.
It had been in an uptrend for the past week, but the uptrend has weakened recently. Fundamentally, the eurozone economy appears weaker than that of the United States, leading traders to discount more interest rate cuts by the European Central Bank (ECB) than by the Federal Reserve (Fed). Therefore, the fundamental pressure on EUR/USD should be bearish. However, the couple is very sensitive to the publication of new data and comments from officials. For example, yesterday's EUR/USD drop could have been partly due to dovish comments from ECB board member Piero Cipollone. He said the central bank does not need to create more slack in the eurozone economy to control inflation, given that demand is already weak. In other words, the ECB is increasingly looking for an opportunity to cut interest rates.
EUR/USD was essentially stable during the early Asian and European trading sessions ahead of the US CPI report at 1:30 pm UTC. Lower-than-expected figures will increase the Federal Reserve's confidence in taking control of inflation. Therefore, the data will likely trigger a sell-off in the dollar, while EUR/USD could rise above 1.08000. If the CPI numbers beat forecasts, EUR/USD could fall below the important 1.07200 level.
Sterling trend may change today due to US inflation report
The British pound (GBP) gained 0.06% in a quiet trading session on Monday.
has been moving sideways for the last 4 days ahead of the release of critical US and UK macroeconomic reports. This week is likely to be extremely volatile for GBP traders as inflation reports in both countries, along with other major releases, will provide clues as to when the Federal Reserve (Fed) and Bank of England (BOE) could begin to cut interest rates. The market currently views the BOE as a relatively less dovish regulator than the Federal Reserve. According to interest rate swap market data, investors price in just 80 basis points (bps) of rate cuts from the BOE, but expect 110 bps rate cuts from the Federal Reserve in 2024. The reports this week can substantially alter current expectations and define the GBP/USD trend in the medium term.
GBP/USD was essentially unchanged in today's Asian session, but jumped sharply during the early hours of European trading following the release of a better-than-expected labor market report from the Office for National Statistics. The data showed that British wages, excluding bonuses, grew by 6.2% in the fourth quarter of 2023 compared to the fourth quarter of 2022, while the unemployment rate fell to just 3.8%. If the US CPI figures at 1:30 pm UTC today are lower than expected, the uptrend in GBP/USD could continue, potentially pushing the pair above 1.26600. However, higher-than-expected CPI numbers could break GBP/USD's uptrend, taking the pair below 1.26000.