Gold hovers at seven-week high as additional clues of softer US inflation eyed

Market sentiment remains dicey early Friday as traders seek more clues to confirm the Federal Reserve’s (Fed) early rate cuts, especially after the previous day’s disappointing US inflation fueled rate cut bets and drowned the US Dollar. Apart from the pre-data anxiety, mixed geopolitical headlines and volatility in Japanese markets also stopped the traders from participating.

That said, the US Dollar Index (DXY) marked a heavy slump after the US headline inflation gauge for June, namely the Consumer Price Index (CPI), marked the slowest increase in a year. However, the mixed sentiment and pre-data consolidation allows the greenback to lick its wounds of late.

EURUSD refreshed its monthly high and the GBPUSD rose to the highest since July 2023 amid a broad-based US Dollar weakness, before marking a corrective move of late. On the same line, USDJPY dropped heavily as Japanese officials took advantage of the USD’s fall and intervened to defend the previously slumping Yen.

AUDUSD and NZDUSD also remained on the front foot but lacked upside momentum early Friday despite firmer China trade data.

Meanwhile, USDCAD appeared as an exception and posted a daily positive closing while bouncing an important support line.

Crude Oil prints a three-day winning streak while bracing for a fifth consecutive weekly gain whereas Gold price eyes a three-week uptrend after rising the most since early March, making rounds to a seven-week high by the press time.

Cryptocurrencies surprisingly lacked momentum and failed to cheer the US Dollar’s fall as the top-tier pairs BTCUSD and ETHUSD closed with mild losses on Thursday. While tracing the catalysts, mixed on-chain data and US President Joe Biden’s hard stand against the crypto market players could be held responsible.

Following are the latest moves of the key assets:

• WTI Crude oil rises for the third consecutive day while posting mild gains around $83.20 by the press time.
• Gold prods a three-day winning streak at a seven-week high, down 0.45% intraday to $2,405 at the latest.
• The USD Index seesaws around 104.50 after falling to a five-week low the previous day.
• Wall Street closed mixed and tested momentum in the Asia-Pacific markets. That said, equities in Britain and Europe printed mild gains during the initial trading hour.
• BTCUSD and ETHUSD both pare weekly gains around $57,300 and $3,100 respectively as we write.

US inflation bolstered dovish Fed bets and drowned US Dollar…

The US Dollar Index (DXY) marked the biggest daily fall in a month after the US Consumer Price Index (CPI) printed a slowest increase since July 2023. Also weighing on the Greenback were the softer prints of the Core CPI and mostly dovish Fed talks. Alternatively, a welcome improvement in the US Initial Jobless Claims, Federal Budget Deficit and Cleveland Fed median CPI tried defending the Greenback but failed.

Chicago Fed President Austin Goolsbee conveyed happiness with the easing inflation pressure while indirectly promoting the idea of rate cuts in late 2024. The policymaker also ruled out concerns about ‘overheating’ the US economy and defended the current policy measures.

On the same line, St Louis Federal Reserve’s new President Alberto Musalem said that the CPI data shows 'encouraging further progress'. Furthermore, San Francisco Fed President Mary Daly also advocated for, “some policy adjustments” while citing the recent inflation figures as a relief.

After the downbeat US inflation clues, global rating agency Fitch cited sufficient confidence to begin cutting interest rates is getting closer. The rating giant, however, also mentioned, “The Federal Reserve will likely want to see similar prints in August and September before pulling the trigger on that first rate cut.”

China’s June trade numbers showed upbeat results as the headline Trade Balance improved in USD and CNY terms. It’s worth noting that a three-day North Atlantic Treaty Organization (NATO) summit in Washington criticized China’s alliance with Russia. The participants also discussed reclaiming some Chinese-owned infrastructure in Europe, which in turn challenged the previous risk-on mood and allowed the US Dollar bears to take a breather.

EURUSD rose to a five-week high before softer prints of Germany’s Wholesale Price Index (WPI) challenged the Euro bulls. On the same line, GBPUSD jumped to the highest level since July 2023 ahead of Friday’s retreat amid the lackluster markets.

While the US Dollar was drowning in the CPI disappointment, Japan made a smart move to defend the Yen by market intervention and doubled down on the USDJPY fall. With that, the Yen major marked the biggest daily fall since early May. However, earlier in the day, Japan’s Industrial Production and Capacity Utilization marked upbeat figures for May while the Bank of Japan’s (BoJ) quarterly survey found more households anticipating prices to be higher in the next year, which allowed the quote to lick its wounds.

AUDUSD rose to a fresh high since early January amid the USD’s broad weakness. In doing so, the Aussie pair ignored softer Consumer Inflation Expectations at home. However, upbeat prints of China trade numbers help the risk barometer pair to remain firmer at the multi-day high of late. Moving on, NZDUSD reversed the mid-week losses after the US Dollar’s fall but struggled to keep the run-up on mixed data at home. That said, New Zealand’s Card Sales for June improved but final readings of June Manufacturing PMI dipped more beneath 50.0 and challenged the Kiwi pair’s recovery marked on Thursday.

Alternatively, USDCAD bucked the trend while posting a daily positive despite the downbeat US Dollar and firmer prices of Crude Oil, Canada’s key export. That said, the Loonie pair dropped to the lowest level in three months before reversing from 1.3585 and ending positively.

Crude Oil managed to cheer the US Dollar’s weakness, as well as the risk-on mood, as it extended the mid-week rebound from a fortnight low. However, news from the International Energy Agency (IEA) challenged the black gold buyers as it kept the 2024 oil demand unchanged while expecting a fall in 2025 consumption due to China concerns.

Gold marked the biggest daily jump since March 01 after the US inflation data fueled Fed rate cut bets. In doing so, the precious metal rose to a seven-week high while bracing for a third consecutive weekly gain. Apart from the US CPI-led move, hopes of witnessing more investment demand for the XAUUSD also propelled the bullion prices. That said, the delegates from the London Bullion Market Association (LBMA) and the World Gold Council (WGC) advocated for reconsidering Gold as a high-quality liquid asset under Basel 3.

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

US PPI, UoM data eyed for possible USD consolidation…

Although the US Dollar Index (DXY) appears well set for a second weekly loss, the US Producer Price Index for June and preliminary readings of July’s consumer-centric data from the University of Michigan (UoM) will be eyed for a likely consolidation of the Greenback’s losses. That said, the PPI and the Core PPI numbers are likely to recover and the UoM Consumer Sentiment Index is also expected to improve. However, an anticipated softness in the inflation expectations might exert downside pressure on the USD. Elsewhere, India CPI and Canadian housing data, as well as risk news about Russia and the Middle East, will also entertain the momentum traders.

Overall, traders will seek more clues to confirm the Fed’s early rate cuts, which if confirmed will provide additional strength to the US Dollar bears.

May the trading luck be with you!