Gold prices (XAU) experienced a significant 1.5% increase yesterday, remaining close to all-time highs. This surge was driven by the anticipation of a more accommodative US monetary policy and a heightened demand for safe-haven assets.
The Federal Reserve (Fed) kept interest rates steady on Wednesday as predicted, signaling a potential shift towards a more lenient monetary policy due to recent economic indicators such as moderating consumer prices and a weakening job market.
Fed Chair Jerome Powell suggested that the central bank could lower rates as early as September if the US economy continues on its projected path. This move would mark the end of the Fed’s prolonged battle against inflation.
The outlook for gold remains positive, with prices expected to reach $2,500 this year as the Fed eases interest rates,” commented Peter Fung, head of dealing at Wing Fung Precious Metals.
Furthermore, escalating tensions in the Middle East, following recent events such as the assassination of Hamas leader Ismail Haniyeh in Tehran and Israel’s airstrike in Beirut, have further bolstered the appeal of gold as a safe-haven asset.
On the other hand, China’s manufacturing activity, a key consumer of metals, contracted for the first time in nine months in July.
XAU/USD faced resistance at the $2,450 level and saw a slight correction during Asian trading hours. Traders are advised to monitor the release of the US ISM Manufacturing Purchasing Managers’ Index report at 2:00 p.m. UTC today.
If the results exceed expectations, the bullish momentum in XAU/USD is likely to continue. Conversely, weaker figures could pause or even reverse this trend.
Euro Stability Amid Mixed Data
The Euro (EUR) traded within the 1.08000–1.08400 range on Tuesday, registering a 0.11% increase. Meanwhile, the US Dollar Index (DXY) declined by 0.42% following Jerome Powell’s comments.
In his speech, Powell hinted at a possible rate cut in September if inflation decreases as projected, economic growth remains steady, and the job market stays stable.
However, he emphasized that the Fed is data-dependent and has not made conclusive decisions regarding future monetary policy adjustments.
Unexpectedly, the annual inflation rate in the eurozone rose to 2.6% in July, up from 2.5% in June, contrary to expectations of a slowdown to 2.4%. The core inflation rate, excluding volatile components, remained steady at 2.9%.
This data could influence expectations of a second rate cut by the European Central Bank (ECB) at its September meeting. With inflation above the ECB’s target, the central bank faces the challenge of supporting economic growth without fueling further inflation.
EUR/USD continued to trade within the 1.08000–1.08400 range during Asian and early European sessions. The release of US economic data at 12:30 p.m. UTC today may introduce volatility to the market, potentially pushing EUR/USD towards 1.08500 in case of lower-than-expected figures.
GBP Volatility Ahead of BOE Rate Decision
The British Pound (GBP) gained 0.17% against the US Dollar (USD) on Wednesday following the Fed’s stance on potential rate cuts in September.
Jerome Powell’s remarks hinted at a forthcoming rate reduction if economic conditions align with expectations. However, the Fed remains cautious and awaits further data before finalizing its decisions.
Traders have fully priced in a rate cut by the Fed in September, with a 65% likelihood of an additional cut in November according to the CME FedWatch Tool.
As a result, the US Dollar Index (DXY) has been under pressure despite some stronger-than-expected economic data.
Options volatility in GBP pairs has surged to a year-high as traders await the Bank of England’s (BOE) interest rate decision today. Markets anticipate a 55% chance of a rate cut, with significant uncertainty surrounding the outcome.
GBP/USD experienced slight declines in Asian and early European trading sessions. The BOE’s rate decision is scheduled for 11:00 a.m. UTC.
Traders should also pay attention to the Monetary Policy Summary and the official votes of the Monetary Policy Committee, as these factors could influence GBP/USD’s direction based on the BOE’s stance.
In conclusion, gold prices have surged due to geopolitical tensions and rate cut expectations, while the Euro and British Pound face volatility amid mixed data and central bank decisions. Traders should closely monitor economic indicators and central bank announcements to make informed decisions in these uncertain times.
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