• Tue. Apr 23rd, 2024

Concerns Over Inflation and the Federal Reserve’s Policy Signals Cause the XAU/USD Pair to Reach a Three-Day High

Leon Kramer

ByLeon Kramer

Feb 17, 2024
Concerns Over Inflation and the Federal Reserve’s Policy Signals Cause the XAU/USD Pair to Reach a Three-Day High

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  • Gold reached $2015, profiting from a weaker Dollar and increased US Treasury yields amidst ongoing inflation indicators.
  • US Producer Price Index and Core Producer Price Index exceed predictions, suggesting persistent inflation and adding complexity to the Federal Reserve’s goals.
  • Suggestions of upcoming reductions in interest rates by Federal Reserve officials influence market sentiment, boosting Gold’s appeal as a safeguard against uncertainty in policies.

The price of Gold continued to rise for two consecutive days, reaching a three-day peak at $2015, while the US Dollar fell, even though US Treasury yields increased. American economic indicators indicate that inflation is more persistent than anticipated, even though officials at the Federal Reserve have hinted at the possibility of adjusting policy.

XAU/USD Goes up as Us Data Shows That Inflation Is Still There, and Fed Officials Say People Need to Be Patient

The XAU/USD is currently trading at $2012.14, showing a 0.39% increase. Data from the US Department of Labor indicated that producer prices increased more than expected, suggesting that the US Federal Reserve has more efforts ahead to control inflation.

In January, the Producer Price Index (PPI) was reported at 0.9%, surpassing expectations but falling short of December’s 1%. The primary PPI surged by 2%, exceeding both the market expectations and the figures from the prior month.

Simultaneously, housing data in the US saw a significant drop, with Housing Starts falling by 14.8% from 1.562M to 1.331M and Building Permits declining by 1.5%.

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At the same time, the initial Consumer Sentiment survey conducted by the University of Michigan (UoM) indicated that Americans continue to hold a positive outlook on economic conditions. The index saw an increase from 79.0 to 79.6, with inflation expectations for one year rising to 3% and remaining steady at 2.9% for five years.

The steady food increased despite the fact that yields on US Treasury bonds, precisely the benchmark rate for the 10-year note, improved by six basis points to 4.29%, which did not provide support for the US dollar.

Representatives from the Federal Reserve issued statements at the same time, with the Federal Reserve President of Atlanta, Raphael Bostic, and the Federal Reserve President of San Francisco, Mary Daly, taking the lead. Bostic emphasized the importance of having patience and is anticipating the possibility of two reductions in interest rates, which could begin in the summer if the data supports such a move.

Daly observed that there is still a great deal of work to be done, highlighting the significance of avoiding making hasty decisions and being prepared to adjust quickly to changes in the economy during his remarks.

Both parties concurred that inflation is moving in a downward direction, but they are proceeding with caution regarding the timing of when they will begin to relax policy.

Taking into account the fundamental basis, the price of gold will continue to be uncertain based on the prospects of the United States’ economy. An increase in inflation may cause yields on US Treasury bonds to suddenly increase. As a result, it is anticipated that the XAU/USD exchange rate will continue to fall.

Alternatively, if inflation continues to move closer to the 2% target that the Federal Reserve has set, this could lead to interest rate reductions, which could affect the attractiveness of the United States dollar. It is an indication that the XAU/USD pair is expected to have an upward potential.

Examining the XAU/USD Price From a Technical Perspective

The price of Gold is poised to end the week with declines despite having regained some traction. Based on the daily moving averages (DMAs), XAU’s trend is currently upward. Still, after hitting $2088 on December 28, it has been forming consecutive lower highs/lows, indicating a potential for more decline.

In case XAU/USD records a daily close under $2000, it might trigger a downward movement towards the 100-DMA at $1996.10 and then potentially reach the December 13 low of $1973.13. Violating the latter will reveal the 200-day moving average at $1965.46. Positively, the initial obstacle appears at the 50-day moving average at $2031.98.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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