Gold Hits Record High as USD Weakens
Gold prices soared to a new all-time high on Friday, driven by a weakening US dollar and falling bond yields. The surge in gold prices was fueled by heightened expectations of a significant interest rate cut by the Federal Reserve this week, leading investors to seek safe-haven assets.
- Gold surpassed $2,580 per ounce on Friday.
- CME’s FedWatch Tool indicates a 59% probability of a 50-basis-point rate cut by the Fed.
- Weaker August data and softening labor market signals contributed to the rate cut expectations.
- Lower US inflation and recent interest rate cuts by the Fed support gold prices.
Factors Driving Demand for Gold
- US political uncertainty ahead of the November election.
- Ongoing geopolitical risks and tensions in regions like the Middle East.
- Reports of an assassination attempt on Donald Trump and continued Russia-Ukraine conflict.
Market Outlook
XAU/USD saw upward movement during Asian and early European trading sessions. This week, investors will closely monitor the Federal Open Market Committee (FOMC) interest rate decision, along with policy meetings of the Bank of England and the Bank of Japan, which could impact gold prices.
“Spot gold may test resistance at $2,598 per ounce, as a break above could open the way towards the $2,611 to $2,619 range,” said Reuters analyst Wang Tao.
Euro Holds Ground Amid Fed Rate Cut Uncertainty
The euro remained stable against the US dollar on Friday despite speculations of a potential 50-basis-point rate cut by the Federal Reserve later this week. The uncertainty surrounding the size of the rate cut continues to influence market sentiment.
- Traders have priced in a 59% chance of a 50-bps rate reduction and a 41% probability of a smaller 25-bps cut.
- Divergence in monetary policy expectations between the ECB and the Fed favors the euro.
- Interest rate swaps market data suggests the Fed could be more dovish than the ECB in the next 12 months.
Market Expectations
EUR/USD experienced upward movement during Asian and early European trading hours. Traders are cautious ahead of the Fed’s decision this week, and volatility may remain low in the absence of significant market events.
Pound Strengthens Ahead of Fed Rate Decision
The British pound showed bullish momentum near its one-week high on Friday as traders anticipated a US rate cut and no change in the Bank of England’s interest rates this week.
- Speculations of a significant 500-basis-point rate cut by the Fed boosted GBP/USD.
- The Bank of England is expected to maintain its current interest rate after a recent reduction.
- US rates are projected to decline faster than UK rates, supporting the pound.
Market Analysis
GBP/USD has been trading bullishly, attempting to break above the 1.31600 resistance level. Traders are awaiting CPI data and the Fed’s decision for further market direction.
Overall, gold, euro, and pound are all influenced by central bank decisions and global economic uncertainties. Investors should closely monitor upcoming events and data releases to make informed investment decisions.