Gold (XAU) increased by 0.53% on Tuesday as the US dollar and Treasury yields retreated.
Unexpectedly robust US employment and services sector data and Federal Reserve (Fed) chair Jerome Powell’s hawkish comments have decreased the likelihood of interest rate reductions. As a result, the US Dollar Index continues to move near multi-month highs even after yesterday’s minor pullback. In a recent interview, Powell echoed his previous statement, suggesting that a rate cut in March is unlikely. He also mentioned that the central bank plans to proceed with rate cuts more gradually than the market predicts.
XAU/USD was essentially unchanged in Asian and early European trading sessions. There are no major data releases today, but Fed officials’ speeches might clarify future US monetary policy. If speeches support Jerome Powell’s rather hawkish stance, XAU/USD may decline towards 2,024. Otherwise, gold may strengthen. ‘Spot gold may retrace to $2,029 per ounce as it failed to break resistance at $2,038,’ said Reuters analyst Wang Tao.
EUR/USD Rises Above 1.07500, but the Bearish Trend Persists
The euro (EUR) gained 0.12% on Tuesday as the US Dollar Index (DXY) corrected after a strong 2-day rally.
Still, EUR/USD continues to trade near multi-month lows as strong US macroeconomic data and hawkish comments from Federal Reserve (Fed) officials bolster the US dollar. Loretta Mester, president of the Cleveland Fed, said she couldn’t provide the exact timing of rate cuts amid ongoing inflation uncertainty. Thus, the market’s expectations for an interest rate cut in May continue to slide. Now, investors price in only a 54% chance of a 25 basis point rate reduction in May. At the same time, the likelihood of a rate cut in the eurozone is also decreasing. Boris Vujcic, Croatia’s central bank governor, told Reuters that the European Central Bank (ECB) doesn’t need to rush cutting rates, arguing that the ‘equilibrium’ rate in Europe is higher than it used to be.
EUR/USD was rising slightly in the Asian and European trading sessions. The macroeconomic calendar is uneventful today, so the pair will likely move within the established trend. However, the upcoming speeches by Fed officials could shed some light on the future path of US interest rates and spur some volatility in all USD pairs. Adriana Kugler and Michelle Bowman, members of the Fed Board of Governors, and Tom Barkin, the president of Richmond Fed, will have speeches at 4:00 p.m., 7:00 p.m., and 5:30 p.m. UTC. If they give hawkish messages, the bearish trend in EUR/USD might resume, potentially taking the pair below the important 1.07000 level. Meanwhile, a dovish message may trigger a short-term rally towards 1.08000.
The Australian Dollar Rises as RBA Keeps Interest Rates Steady
Despite dropping below 0.65000 against the US dollar, the Australian dollar (AUD) recovered and gained 0.63% on Tuesday.