Daily Global Analysis By zForex

Gold Prices Jump on Rate Cut Hopes, Dollar Stumbles After Dovish Fed

Gold prices surged to over $2,310 per ounce on Monday, bouncing back from nearly a month-low last week. Traders are observing remarks from various Federal Reserve officials this week to estimate potential rate cuts, especially after disappointing US labor data for April. The data showed a slower job growth rate than expected, strengthening the likelihood of rate cuts later in the year. According to CME's FedWatch Tool, there's a 67% chance of a rate cut in September. Lower interest rates make holding gold more attractive since it doesn't yield interest. However, in India, demand for physical gold remained subdued last week despite price drops, as buyers are waiting for bigger price declines. Meanwhile, Chinese premiums dropped for the second consecutive week due to weak holiday demand.
On Monday, the dollar index stabilized above 105.00 as investors evaluated the Federal Reserve's monetary policy stance and awaited upcoming central bank statements. Last week, the index declined approximately 1% after the Fed kept interest rates unchanged, and Chair Powell reiterated the central bank's inclination towards easing despite inflation concerns. Additionally, April's job data revealed a lower-than-expected increase of 175,000 jobs, further supporting market expectations of rate cuts, with a November cut fully anticipated. The dollar also faced pressure from the yen's strong rally last week, amid suspicions that the Bank of Japan intervened heavily to bolster its currency, spending over 9 trillion yen in the process.
The Japanese yen weakened towards 154.00 per dollar, retracting some of its gains from last week due to a public holiday, though concerns about government intervention persist. Last week, the currency surged by up to 5.2% on suspicions of intervention, with Bank of Japan data indicating significant spending to support it. Analysts suggest this intervention only offers temporary respite as underlying market conditions remain unfavorable for the yen. The yen has faced downward pressure this year as the Bank of Japan maintains ultra-low interest rates despite higher rates abroad, prompting investors to borrow yen for investment in higher-yielding currencies. However, expectations of two rate cuts by the US Federal Reserve this year may ease pressure on the yen.
In April 2024, the Caixin China General Composite PMI rose slightly to 52.8 from 52.7 in March, marking the highest level since May 2023. This indicates the sixth straight month of growth in private sector activity, driven by strong performance in both manufacturing and services. New orders increased notably, but employment levels declined for the third consecutive month. Input and output prices remained low, mainly due to subdued manufacturing factory gate prices. Overall, sentiment remained steady. Dr. Wang Zhe of Caixin Insight Group emphasized the importance of effective policy implementation to sustain economic recovery and improve market confidence.
 
Gold Prices Jump on Rate Cut Hopes, Dollar Stumbles After Dovish Fed

Gold prices surged to over $2,310 per ounce on Monday, bouncing back from nearly a month-low last week. Traders are observing remarks from various Federal Reserve officials this week to estimate potential rate cuts, especially after disappointing US labor data for April. The data showed a slower job growth rate than expected, strengthening the likelihood of rate cuts later in the year. According to CME's FedWatch Tool, there's a 67% chance of a rate cut in September. Lower interest rates make holding gold more attractive since it doesn't yield interest. However, in India, demand for physical gold remained subdued last week despite price drops, as buyers are waiting for bigger price declines. Meanwhile, Chinese premiums dropped for the second consecutive week due to weak holiday demand.
On Monday, the dollar index stabilized above 105.00 as investors evaluated the Federal Reserve's monetary policy stance and awaited upcoming central bank statements. Last week, the index declined approximately 1% after the Fed kept interest rates unchanged, and Chair Powell reiterated the central bank's inclination towards easing despite inflation concerns. Additionally, April's job data revealed a lower-than-expected increase of 175,000 jobs, further supporting market expectations of rate cuts, with a November cut fully anticipated. The dollar also faced pressure from the yen's strong rally last week, amid suspicions that the Bank of Japan intervened heavily to bolster its currency, spending over 9 trillion yen in the process.
The Japanese yen weakened towards 154.00 per dollar, retracting some of its gains from last week due to a public holiday, though concerns about government intervention persist. Last week, the currency surged by up to 5.2% on suspicions of intervention, with Bank of Japan data indicating significant spending to support it. Analysts suggest this intervention only offers temporary respite as underlying market conditions remain unfavorable for the yen. The yen has faced downward pressure this year as the Bank of Japan maintains ultra-low interest rates despite higher rates abroad, prompting investors to borrow yen for investment in higher-yielding currencies. However, expectations of two rate cuts by the US Federal Reserve this year may ease pressure on the yen.
In April 2024, the Caixin China General Composite PMI rose slightly to 52.8 from 52.7 in March, marking the highest level since May 2023. This indicates the sixth straight month of growth in private sector activity, driven by strong performance in both manufacturing and services. New orders increased notably, but employment levels declined for the third consecutive month. Input and output prices remained low, mainly due to subdued manufacturing factory gate prices. Overall, sentiment remained steady. Dr. Wang Zhe of Caixin Insight Group emphasized the importance of effective policy implementation to sustain economic recovery and improve market confidence.
 
Dollar Index Stable, Gold Prices Surge, WTI Crude Slips, BoJ Adjusts Bond Purchases
On Monday, the dollar index stabilized around 105.3 as investors prepared for crucial US inflation figures scheduled for release this week, which could shape the Federal Reserve's monetary policy stance. Last week, the index saw marginal gains as Federal Reserve officials urged caution regarding interest rate reductions. Fed Governor Michelle Bowman expressed skepticism about rate cuts in 2024, while Dallas Fed President Lorie Logan suggested it's premature to consider such measures. Additionally, recent data indicated a rise in consumer inflation expectations, although a notable decline in US consumer confidence provided further indication of economic slowdown. Despite recent trends, the markets are still expecting a potential easing cycle that is expected to begin in September while watching April's inflation data for additional insights into the future trajectory of interest rates.
Gold prices neared $2,360 per ounce on Monday, reaching their highest point in three weeks, driven by anticipation of a Federal Reserve interest rate cut in response to disappointing US employment data. Last week, reports revealed a larger-than-expected increase in unemployment claims, indicating a slowdown in job growth. This has prompted investors to anticipate the Fed's easing measures starting in September. Traders are now focusing on the upcoming April CPI and PPI releases to gain further insight into the Fed's monetary policy direction, particularly in light of concerns expressed by several Fed officials regarding potential easing. Escalating tensions in the Middle East continues to strengthen gold's appeal as a safe-haven asset. On Sunday, Israel deployed tanks to eastern Jabalia in the northern Gaza Strip following significant aerial and ground attacks during the night.
On Monday, WTI crude futures slipped below $78 per barrel, continuing a decline from the previous session due to concerns about demand-side uncertainties. Oil prices experienced a drop of over 1% on Friday following indications from US Federal Reserve officials suggesting that interest rates may remain elevated for an extended period, potentially impacting growth and reducing fuel demand in the world's leading oil consumer. Friday's data also revealed a significant decline in US consumer confidence, further indicating a slowdown in the economy. Additionally, US gasoline and distillate inventories increased in the week preceding the summer driving season, signaling weak demand. Investors are now looking ahead to OPEC's upcoming policy meeting in early June, where the group is anticipated to extend supply cuts through the latter part of the year.
On Monday, the Bank of Japan (BoJ) conducted a routine bond purchase operation, offering to buy a smaller volume of government bonds compared to its previous operation on April 24. This decision aligns with the BoJ's strategy to gradually reduce its presence in Japan's debt market. The move is expected to exert upward pressure on Japanese bond yields, potentially narrowing the significant yield gap between Japan and the US, which has been detrimental to the yen's strength. Following the BoJ's announcement, yields for the 10-year benchmark maturity rose, leading to a partial recovery of the yen's earlier losses. Governor Kazuo Ueda had previously stated in March that the BoJ aims to prioritize short-term interest rates as its primary policy tool instead of relying heavily on bond purchase operations or increasing the central bank's debt holdings. A summary of the BoJ's April policy meeting, released last week, revealed that board members are observing the impact of the weak yen on inflation and are considering the possibility of accelerating interest rate hikes. This has led to speculation that the BoJ may raise rates sooner than anticipated and reduce its debt-buying activities accordingly.
 
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