Gold Retreats Amid Profit-Taking, but the Bullish Trend Remains Intact
The gold ( XAU/USD ) price dropped by 0.31% on Tuesday as traders started to exit their long positions after bullion failed to hold above the important $2,930 level.
Despite a recent technical correction, the fears of a global trade war, spurred by US trade tariffs, will likely keep investors on edge. Thus, it's too early to assume that a bullish trend in XAU/USD, which started in late December, may be over.
"Just seeing some profit-taking from the shorter-term futures traders the market's becoming a bit overextended and just due for some downside corrective pressure and some chart consolidation", said Jim Wyckoff, a senior market analyst at Kitco Metals.
On Monday, US President Donald Trump substantially raised tariffs on steel and aluminium imports towards 25% 'without exceptions or exemptions'. Economists fear the decision might trigger a global trade war and increase inflation. Gold tends to perform well as a protective asset when geopolitical and economic uncertainty is rising.
At the same time, US interest rates remain relatively high and continue to exert some bearish pressure on the bullion. Indeed, in his first appearance before Congress this year, Federal Reserve (Fed) Chair Jerome Powell said the central bank isn't rushing to cut interest rates given a 'strong overall' economy and inflation that remains above its 2% target. A recent Reuters poll showed that the Fed would wait until the next quarter before cutting rates again. However, the Fed may postpone the decision even further if trade tariffs heighten US inflation.
Earlier today, XAU/USD fell during the Asian and early European trading sessions. Investors await US inflation data due at 1:30 p.m. UTC for fresh clues on the interest rate outlook.
"Higher-than-expected inflation readings could extend the rate pause by the Fed, which could cause gold's performance to moderate in the short term", said Ryan McIntyre, senior portfolio manager at Sprott Asset Management.
"Spot gold may retest support at $2,879 per ounce, a break below which could open the way towards $2,847 to $2,867 range", said Reuters analyst Wang Tao.
The Euro Gains on Weakening US Dollar
The euro ( EUR/USD ) gained 0.52% against the US dollar (USD) on Tuesday as the bullish trend in the US Dollar Index (DXY) showed signs of exhaustion, prompting traders to book profits on their long positions.
EUR/USD has been moving sideways for about two months now as all the bearish factors for the pair have been almost entirely priced in, while bullish news has been generally absent. The divergence in monetary policy expectations between the European Central Bank (ECB) and the Federal Reserve (Fed) has favoured the greenback since October last year. Still, it hasn't grown much over the past few months.
Despite Jerome Powell, the Fed Chair, confirming yesterday that there was no rush to cut US interest rates, EUR/USD moved higher. The rise suggested that relative monetary policy between the two countries is no longer a primary driving factor for the pair. Meanwhile, the risk of US trade tariffs has already damaged the euro, pushing it below the 1.03000 mark. Still, no new tariffs for the eurozone have been announced yet. Without new fundamental impulses, EUR/USD may continue to trade within a broad 1.01800–1.05300 range in the medium term.
EUR/USD was essentially flat during the Asian and early European trading sessions. Today, traders should focus on the US Consumer Price Index (CPI) data, due at 1:30 p.m. UTC. The report might impact investors' interest rate expectations and trigger above-normal volatility in all USD pairs. The market expects a 0.3% rise in monthly core inflation and a 3.1% annual increase. Higher-than-expected figures will likely push EUR/USD below the 1.03445 level. Conversely, lower-than-expected results may provoke a rally towards 1.04000.
GBP Rises Despite Powell's Hawkish Comments
The British pound ( GBP/USD ) gained 0.62% against the US dollar (USD) on Tuesday as the greenback weakened despite the US Federal Reserve's (Fed) hawkish stance on interest rates.
Fed Chair Jerome Powell said the US central bank was in no rush to cut its short-term interest rate. In his speech before the Senate Banking, Housing and Urban Affairs Committee, Powell said that the view on rates reflected the US economy being 'strong overall', with low unemployment and inflation remaining above the Fed's 2% target.
According to Reuters, traders expected such rhetoric, so some may have preferred to exit their long positions in the US Dollar Index (DXY) without new bullish surprises. As a result, other major currencies moved higher. Fundamentally, investors still expect the Bank of England (BOE) to pursue a looser monetary policy than the Fed. Markets currently imply a roughly 34% chance of two 25-basis-point rate cuts by the BOE by November 2025 but expect only a single rate cut by the Fed.
GBP/USD was relatively unchanged during the Asian and early European trading sessions. Over the next 48 hours, traders should focus on two events. Today, the US Bureau of Labor Statistics will release its monthly Consumer Price Index (CPI) report at 1:30 p.m. UTC. The market expects a 0.3% rise in monthly core inflation and a 3.1% annual increase. If the CPI report reveals higher-than-expected inflation figures, GBP/USD may drop slightly. If the data shows slowing inflation, GBP/USD will likely rise sharply. Furthermore, the U.K. Gross Domestic Production report will be released tomorrow at 7:00 a.m. UTC. This may further increase the GBP/USD volatility, so traders should be careful. Key levels to watch are resistance at 1.25440 and support at 1.23900.