Strong US Macro Statistics Limit Gold's Gains
Gold ( XAU/USD ) rose by 0.17% on Tuesday but failed to hold above the important $2,660 level.
It appeared that XAU/USD was on course to break above an important intra-week level, but stronger-than-expected US JOLTS Job Openings data supported the US dollar (USD) and trimmed the gains. Robust labour market statistics suggest that the Federal Reserve (Fed) may adopt a cautious approach to rate cuts. This may discourage some investors from purchasing gold in the long term.
At the same time, gold remains a primary hedge against geopolitical risks. Analysts at JPMorgan and HSBC emphasised that President-elect Donald Trump's policies could further heighten geopolitical risks, potentially benefiting gold as a safe haven asset in 2025. ‘We believe gold's post-election sell-off was a positioning-driven stumble, not a sea change’, JPMorgan analysts noted, forecasting prices could climb toward $3,000 in 2025.
XAU/USD was rising during the Asian and early European trading sessions. Today, the market will likely experience above-normal volatility due to US reports. ADP Employment data is due at 1:15 p.m. UTC, and ISM Services Index is due at 3:00 p.m. UTC. Both releases usually impact the US Dollar Index noticeably and thus will affect XAU/USD. In addition, Jerome Powell, the Fed Chair, will give a speech at 6:45 p.m. UTC and may provide additional forward guidance on monetary policy. If he sounds hawkish, gold may drop slightly. Conversely, dovish rhetoric may pull XAU/USD much higher, possibly above $2,670.
Political Uncertainty and Strong US Data Pressure Euro
The euro ( EUR/USD ) gained 0.11% against the US dollar (USD) on Tuesday but failed to rise above the important 1.05320 level.
Political uncertainty in France continues to pressure the eurozone market. On Monday, traders sought safety against significant euro fluctuations, driving three-month implied volatility to its highest level since the 2023 banking crisis. This surge was triggered by a potential no-confidence vote against Prime Minister Michel Barnier's minority government. Additionally, uncertainty surrounding the European Central Bank's (ECB) upcoming rate decision contributes to heightened euro volatility. Also, US macroeconomic statistics—stronger-than-expected labour market data—put additional bearish pressure on EUR/USD. Fundamentally, the pair remains in a major downtrend, facing headwinds from both internal and external factors.
EUR/USD was rising slightly during the Asian and early European trading sessions. Traders expect above-normal volatility in all USD pairs today. Several macroeconomic data releases, political events, and Jerome Powell's speech will likely cause significant market movements. First, ADP Research Institute will publish the US Nonfarm Employment report at 1:15 p.m. UTC. Then, the US Institute of Supply Management will release its Services Purchasing Managers Index (PMI) data at 3:00 p.m. UTC. Last, Jerome Powell, the Fed Chair, will give a speech at 6:45 p.m. UTC, potentially offering more clues on the future changes in US monetary policy. However, the major event is the expected no-confidence vote in the French parliament. ‘Even if it passes, they can't have an election until next July. So what they'll probably do is appoint a prime minister and try again, or let Barnier become the caretaker prime minister and pass some laws to keep the government going until July’, said Marc Chandler, chief market strategist at Bannockburn Forex.
British Pound Moves Sideways Ahead of Important US Labour Data
After a slight correction on Monday, the British pound ( GBP/USD ) moved sideways on Tuesday and gained 0.14% after dovish comments from Federal Reserve (Fed) officials.
The Fed officials supported further interest rate cuts but didn't strongly advocate for or against such a move at the December meeting. The officials have been cautious about providing too much guidance about the future direction of monetary policy, particularly due to the recent re-election of Donald Trump as President. Also, US employment data released on Tuesday showed a moderate increase in job openings in October while the number of layoffs decreased. Strong economic data could prompt the central bank to adopt a more cautious approach regarding interest rate cuts. According to the CME FedWatch tool, traders anticipate a 73% probability of a 25-basis-point (bps) reduction this month, with a total of 80 basis points of cuts expected by the end of 2025.
Fiona Cincotta, a senior market analyst at City Index, believes that the Bank of England (BOE) isn't indicating a swift rate reduction, which is favourable for the pound. In contrast, the European Central Bank may need to cut rates more rapidly than the BOE. She also notes that the U.K. has political stability, which major eurozone economies lack. Earlier on Tuesday, the British Retail Consortium reported that U.K. retailers reported subpar sales in November based on industry data. However, the Black Friday data this year will be reflected in the December figures. This partially explains the weakness in consumer spending in November.
GBP/USD continues to trade sideways within a range of 1.26400–1.27000 during Asian and early European trading hours. The US ADP Employment report will be released at 1:15 p.m. UTC today, preceding the nonfarm payroll data on Friday. Also, Fed Chair Jerome Powell will deliver a speech at 6:45 p.m. UTC, likely his final public address before the Fed meeting in two weeks.