Gold prices have neared their historical highs, with bullish trends persisting ahead of the US CPI report. The metal extended its upward trajectory from the $2,485 mark, gaining momentum for the third consecutive day by Wednesday morning. This rise continued into the European session, bringing gold to a new weekly peak as bulls aim to push beyond the $2,525-2,526 resistance zone.
In the mid-North American trading hours on Tuesday, gold prices saw a modest increase of 0.30%, as the market prepared for the release of the critical US inflation report for August. This report, paired with the upcoming presidential debate between Vice President Kamala Harris and former President Donald Trump, is poised to have significant impacts on financial markets. The XAU/USD exchange rate climbed to $2,514, rebounding from a daily low of $2,500.
XAUUSD Chart
Market Dynamics and Treasury Yields
The market sentiment showed slight improvement, with the US dollar easing some of its earlier strength, providing a supportive environment for gold. Concurrently, US Treasury bond yields declined ahead of the anticipated Consumer Price Index (CPI) figures. These figures are expected to support the Federal Reserve’s dovish approach towards initiating a rate cut cycle due to concerns over potential labor market weaknesses.
US Jobs Report and Rate Cut Expectations
The latest employment data from the US revealed a smaller-than-expected increase in workforce numbers, yet the unemployment rate experienced a minor decline, offering some relief to Fed policymakers. Within the swaps market, the probability of a 50 basis point rate cut has risen to 33%, while a 25 basis point cut stands at 67%, according to the CME FedWatch Tool. A Reuters survey highlighted that 92 out of 101 economists anticipate a 25 basis point rate cut during the Fed’s September 17-18 meeting.
GBPUSD Steadies After Disappointing UK GDP Data
The GBP/USD pair has been stable around 1.3100 despite disappointing UK economic data. The stagnant UK economy in July and a surprise drop in industrial production have kept the Pound Sterling from further gains. Attention now shifts to the upcoming US CPI data.
Focus on Inflation and Economic Indicators
The US inflation data is highly anticipated this week, with the August Consumer Price Index (CPI) scheduled for release on Wednesday. Expectations are for headline inflation to decrease to 2.6% year-over-year, down from 2.9% in July, while core inflation is predicted to remain steady at 3.2% year-over-year. Additionally, the Producer Price Index (PPI) on Thursday is expected to indicate a decline in headline inflation to 1.7% year-over-year from 2.2% in July. Market predictions for Federal Reserve rate cuts have stabilized, with the likelihood of a 50 basis point cut this month reducing to 20-25%. The market anticipates total easing of 100-125 basis points by year-end, with no Federal Reserve speeches until Chair Powell’s press conference on September 18.
EUR/USD and the Impact of US Inflation Data
In early Wednesday’s European session, the EUR/USD pair experienced moderate gains near 1.1050, supported by weakness in the US Dollar due to a drop in USD/JPY. However, further gains might be limited due to dovish expectations from the European Central Bank (ECB). The spotlight remains on the upcoming release of the US CPI data by the Bureau of Labor Statistics, a key event scheduled for Wednesday at 12:30 GMT. The US Dollar is bracing for potential volatility, as unexpected results from the US inflation report could significantly affect market expectations regarding the Federal Reserve’s interest rate decisions in September.
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