How the CPI Report May Impact Gold, British Pound


Today’s CPI Report May Define XAU/USD’s Trend

The gold (XAU) price declined by 0.22% on Monday in a relatively quiet trading session as traders refrained from placing big orders ahead of today’s US Consumer Price Index (CPI) report.

Jim Wyckoff, the senior analyst at Kitco Metal, said that interest rate cuts would probably be pushed back to the second half of the year, as US economic data has been too strong lately to expect a rate cut by May. He also added that there is limited buying interest in gold due to the recent rally in the stock market. According to the CME FedWatch Tool, the chance of a 25 basis point (bps) interest rate cut in May is now less than 50%. High-interest rates exert bearish pressure on gold since the metal doesn’t yield any passive income.

“Pending any Federal Reserve (Fed) rate cuts, strong physical demand, and official sector buying are projected to lift prices to an average of $2,200 per ounce next quarter,” said Bart Melek, the head of commodity strategies at TD Securities.

was essentially flat during the Asian and early European trading sessions. Today, the most important event is the US CPI report at 1:30 p.m. UTC, which could offer insights into the Fed’s plans for interest rates. A Reuters poll of economists projects a 0.2% monthly rise in January’s CPI, while core figures are expected to increase by 0.3%. Figures exceeding these forecasts will almost certainly lower the probability of an interest rate cut this spring, potentially bringing XAU/USD below 2,000. Conversely, lower-than-expected CPI numbers will likely cause a rally in XAU/USD, possibly towards 2,050.

“Spot gold may retest support of $2,012 per ounce, a break below which could open the way towards $2,002,” said Reuters analyst Wang Tao.

ECB Officials Appear to Favour Imminent Interest Rate Cuts

The euro (EUR) lost 0.1% in a relatively volatile trading session on Monday, as the market participants repositioned ahead of the US Consumer Price Index (CPI) report.

had been in an uptrend for the past week, but the bullish trend has recently weakened. Fundamentally, the eurozone economy appears weaker than the US, leading traders to price in more interest rate cuts by the European Central Bank (ECB) than by the Federal Reserve (Fed). Thus, the fundamental pressure on EUR/USD should be bearish. However, the pair is highly sensitive to new data releases and officials’ comments. For example, the decline in EUR/USD yesterday might have been partly due to dovish comments from ECB board member Piero Cipollone. He stated that the central bank doesn’t need to create more slack in the eurozone economy to get inflation under control, given that demand is already weak. In other words, the ECB is increasingly seeking an opportunity to cut interest rates.

EUR/USD was essentially flat during the Asian and early European trading sessions ahead of the US CPI report at 1:30 p.m. UTC. Lower-than-expected figures will increase the Fed’s confidence in taking control over inflation. Thus, the data will likely lead to a sell-off in the , while EUR/USD might rally above 1.08000. If CPI figures exceed the forecast, EUR/USD can potentially drop below the important 1.07200 level.

The British Pound’s Trend May Change Today Due to US Inflation Report

The British pound (GBP) gained 0.06% in a quiet trading session on Monday.

has been moving sideways for the past 4 days ahead of the release of the critical macroeconomic reports from the US and the U.K. This week is likely to be extremely volatile for GBP traders as inflation reports in both countries, together with other significant releases, will provide clues on when the Federal Reserve (Fed) and the Bank of England (BOE) may begin cutting interest rates. Currently, the market views the BOE as a relatively less dovish regulator than the Fed. According to the interest rate swap market data, investors price in only 80 basis points (bps) worth of rate cuts from the BOE but expect 110 bps worth of rate cuts from the Fed in 2024. This week’s reports may substantially alter current expectations and define the GBP/USD trend in the medium term.

GBP/USD was essentially unchanged in the Asian session today but jumped sharply during the early European trading hours following the release of a better-than-expected labor market report by the Office of National Statistics. The data showed that British wages, excluding bonuses, grew by 6.2% in Q4 2023 compared to Q4 2022, while the unemployment rate dropped to just 3.8%. If the US CPI figures at 1:30 p.m. UTC today are lower than expected, the bullish trend in GBP/USD might continue, potentially pushing the pair above 1.26600. However, higher-than-expected CPI figures may break the bullish trend in GBP/USD, bringing the pair below 1.26000.

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