Gold Holds Above Historical Highs as Middle East Tensions Continue
The gold (XAU) price remains elevated as traders exercise caution due to escalating tensions in the Middle East.
Israel's air force has reported targeting Hezbollah infrastructure in eastern Lebanon, raising concerns about further tensions between Israel and Hezbollah. Additionally, Jordan's Foreign Minister, Ayman Safadi, warned in a recent interview that Israel's response to Iranian strikes could potentially escalate into a regional war. Amidst these developments, Israeli Prime Minister Benjamin Netanyahu emphasised Israel's right to self-defence despite international calls for restraint. Meanwhile, the US Dollar Index (DXY) declined, influenced by subdued US Treasury yields, making gold more affordable for investors holding other currencies.
On Wednesday, the president of the Federal Reserve (Fed) Bank of Cleveland, Loretta Mester, stated that US inflation exceeds expectations. She noted that the Fed needs more evidence to ensure it's on the path to achieving a sustainable 2% inflation rate. Additionally, Fed Chairman Jerome Powell noted that this year's strong economic data shows limited progress towards the regulator's inflation target, suggesting that the central bank may need more time to achieve it. His remarks hinted at a possible hawkish stance on future monetary policy, meaning the demand for non-yielding assets like gold might decrease if US interest rates remain high.
XAU/USD rose during the Asian and early European trading sessions. Today, traders should focus on two key events: the US Jobless Claims report at 12:30 p.m. UTC and the US Existing Home Sales report at 2:00 p.m. UTC, which could trigger increased volatility in all USD pairs. A higher-than-expected rise in jobless claims figures and a decline in home sales could indicate a weakening job market and a decrease in buying activity. Weak economic data could potentially increase the chances of two rate cuts by the Fed this year, supporting the gold price. Conversely, lower-than-expected jobless claims numbers and stronger home sales data could indicate a robust labour market, putting downward pressure on XAU/USD.
"Spot gold may retest support at $2,354 per ounce, a break below which could be followed by a drop to $2,332," said Reuters analyst Wang Tao.
Euro Corrects Upwards, but 1.07000 Acts as a Strong Resistance
On Wednesday, the euro (EUR) gained 0.51% as US Treasury yields and the US dollar pulled back from multi-month highs.
Yesterday's worse-than-expected US real estate data may have contributed to the decline in the US dollar. However, the primary reason behind the EUR/USD's rally was technical buying after the sharp drop in the previous trading sessions. Fundamentally, the pressure on EUR/USD remains bearish as investors perceive the European Central Bank's (ECB) monetary policy as more dovish than that of the Federal Reserve (Fed). According to interest rate swap market data, traders are pricing in roughly 100 basis points (bps) worth of rate cuts by the ECB and only 45 bps of reductions by the Fed in 2024.
Recent hawkish comments by Fed officials have strengthened traders' belief that the Fed isn't ready to start cutting interest rates this summer. On Wednesday, Fed Governor Michelle Bowman stated that progress on lowering US inflation may have stalled, and it's unclear whether the base rate is high enough to ensure that it returns to the Fed's 2% target.
EUR/USD was rising during the Asian and early European trading sessions. Today, the main focus is on speeches by Fed officials at 1:15 p.m. and 9:45 p.m. UTC. If they maintain a hawkish stance on US monetary policy, the market may completely discount the possibility of a rate cut by the Fed this summer, and EUR/USD could fall. Additionally, traders should focus on the US Jobless Claims report at 12:30 p.m. UTC and the Existing Home Sales report at 2:00 p.m. UTC. Stronger-than-expected data indicating tightness in the labour market and strong consumer sentiment could bring EUR/USD below 1.06600. Conversely, weak US statistics could push EUR/USD above 1.07000.
British Pound Rose on Stronger-Than-Expected U.K. CPI Data
The British pound (GBP) gained 0.18% on Wednesday as it corrected from a five-month low but continued to trade below the important 1.25000 mark.
GBP/USD has been in a downtrend since 8 March as the market lowered the chances of a rate cut by the Federal Reserve (Fed), while the possibility of a rate cut by the Bank of England (BOE) remained relatively unchanged. Recent U.K. macroeconomic data have been somewhat mixed. The Labour Force Survey indicated a sharp decline in employment and a rise in unemployment. Meanwhile, the Consumer Price Index (CPI) figures remained high, prompting investors to scale back their expectations of a rate cut by the BOE. Consequently, the British pound has recently gained some ground.
Nevertheless, BOE officials continue to sound dovish. Andrew Bailey, the BOE Governor, recently stated that British inflation is broadly declining in line with the BOE's forecasts, suggesting that the U.K. is facing fewer inflation risks than the US Therefore, it's crucial to continue monitoring upcoming data reports, as they may determine whether the BOE is preparing to ease its monetary policy this summer.
GBP/USD was rising during the Asian and early European trading sessions. Today's key focus is on the US macroeconomic statistics and upcoming speeches by Fed officials. Specifically, the Jobless Claims report at 12:30 p.m. UTC may trigger above-normal volatility in the market. Lower-than-expected unemployment claims figures could reverse the short-term bullish trend in GBP/USD. Conversely, higher-than-expected results could push GBP/USD higher, towards 1.25000. However, the main event is the U.K. Retail Sales report, due at 6:00 a.m tomorrow.