Gold Rises on Weaker US Economic Report
Gold ( XAU/USD ) gained 0.53% after the release of cooler-than-expected Producer Price Index ( PPI ) report.
The PPI data weakened the US dollar (USD) and supported the precious metals market because lower inflation could lead to earlier interest rate cuts by the Federal Reserve (Fed).
The data revealed that the Producer Price Index (PPI) increased by 3.3% annually in December, lower than the 3.4% anticipated by economists surveyed by Reuters. 'The cooler PPI data surprised the US Dollar Index , which benefited the bulls in the precious metals market. Lower inflation suggests that the Federal Reserve may be able to reduce interest rates sooner', said Jim Wyckoff, a senior market analyst at Kitco Metals.
Investors are awaiting the release of the Consumer Price Index ( CPI ) today to analyse the Fed's plans for monetary policy. A poll conducted by Reuters forecasts an annual increase of 2.9%, compared to 2.7% in November, and a monthly rise of 0.3%.
"We will need to see further progress on inflation in order to restore expectations for interest rate cuts", said Philip Streible, chief market strategist at Blue Line Futures.
Higher-than-expected CPI figures could lead to a decline in gold prices, as it would confirm the view that the Fed is more likely to normalise its dovish policy from last year in 2025, stated Kelvin Wong, a senior market analyst at OANDA for Asia Pacific.
XAU/USD was rising during Asian and early European trading sessions. Market participants will closely monitor the US CPI report at 1:30 p.m. UTC today. A higher-than-expected figure will likely push XAU/USD lower, while lower-than-expected data could extend the current bullish trend in XAU/USD.
Euro Climbs on Weaker US PPI Data
The euro ( EUR/USD ) gained 0.61% against the US dollar (USD) on Tuesday after slightly weaker-than-expected US Producer Price Index (PPI) data. The report gave investors hope that the Federal Reserve (Fed) would continue on its rate-easing path this year, pushing the greenback lower.
EUR/USD closed above the important 1.03000 level yesterday, and bulls are now targeting the 1.03800 level. However, the fundamental pressure on the pair remains bearish as the market continues to expect the European Central Bank (ECB) to pursue a more dovish monetary policy in 2025 than the Fed. Furthermore, another important US inflation report is due later today, so traders are reluctant to place big orders in USD pairs.
It's possible that traders are hedging the other side of the market now before CPI, so we're seeing some pre-release volatility that's keeping the dollar a touch depressed. Tariff stories are the primary driver, it appears, for price action today', said Helen Given, associate director of trading at Monex USA in Washington.
Indeed, the threat of tariffs has lifted US Treasury yields and supported the greenback lately. On Tuesday, however, the market's focus shifted towards the possibility of a gradual increase in US tariffs following a Bloomberg report suggesting that the Donald Trump administration will take a 'measured approach' to tariffs.
EUR/USD was relatively unchanged during the Asian and early European trading sessions. Today, the main focus is on the US Consumer Price Index (CPI) report due at 1:30 p.m. UTC. The upcoming CPI report for December is anticipated to impact the market significantly.
Given its potential to influence interest rate expectations and investors' sentiment, we expect sharp price movements in all USD pairs. The forecast is a 0.2% rise in monthly core inflation and a 3.3% annual increase. If the figures are lower than expected, the US dollar will weaken sharply, pulling EUR/USD higher, probably above 1.03800. Conversely, if the figures exceed expectations, EUR/USD may decline slightly.
Australian Dollar Rises on Lower US Inflation Data
The Australian dollar ( AUD/USD ) gained 0.28% on Tuesday after weaker-than-expected US producer prices data kept the US dollar (USD) stable and pulled bond yields down from their highs.
The US dollar declined on Tuesday following the release of a weaker-than-anticipated monthly Producer Price Index (PPI) report. The report revealed that prices increased by just 0.2% in December, lower than the anticipated 0.4% rise. The core PPI also remained unchanged, contrary to expectations of a 0.3% increase. Australian traders now hope that US core Consumer Price Index (CPI) figures later in the day may at least match forecasts of a 0.2% rise. Numbers exceeding the forecast could further restrict the possibility of rate reductions in the US, boosting the US dollar.
Stephen Halmarick, chief economist at the Commonwealth Bank of Australia, noted that household spending also subdued in December, with a 1.8% decline in CBA's own measure of consumer spending. This was due to sales events in the previous month pulling purchases forward. Given the weak spending environment and the improving inflation outlook, Halmarick argued that the Reserve Bank of Australia could begin lowering interest rates at its first meeting this year. He continued to anticipate 100 basis points of reductions in interest rate through 2025, bringing the cash rate towards 3.35% by the year's end.
AUD/USD was moving sideways during Asian and early European trading hours. Market participants will await the US CPI report at 1:30 p.m. UTC today. A higher-than-expected reading may put downward pressure on AUD/USD, while softer data may give some bullish momentum to the pair. Additionally, the Australian unemployment rate report data comes out tomorrow at 12:30 a.m. UTC. Lower figures may support the pair.