So on Tuesday the USDollar saw only a temporary uplift from stronger-than-expected CPI figures from the US. The USD reverted to pre-release levels, while stock futures rebounded. WE Traders appeared to be refraining from taking decisive bets. This reaction suggests that the inflation data, despite being higher than anticipated, may not be sufficiently influential to deter Fed from cutting interest rate in June. The core inflation rate’s modest cooling, alongside perceptions of energy driven headline inflation rise as “transitory,” has seemingly tempered immediate concerns over persistent inflationary pressures.
In the UK, Pound faced slight selling pressure following reports of weaker-than-expected wage growth and a slight uptick in the unemployment rate. This economic backdrop is unlikely to prompt BoE to delay its anticipated interest rate cut beyond August. However, the lackluster progress on the wages front does not necessitate an accelerated policy easing from BoE either. With the central bank not under immediate pressure to adjust its policy stance, it will continue its patient approach and wait for more data first

The XAU/USD pair hovers around $2,162 and seems poised to extend its slide. Still, to confirm so, the pair would need to break below $2,145.17, the 23.6% Fibonacci retracement of the latest bullish run measured between $1,984.03 and $2,195.22. The next Fibonacci support and a potential bearish target is located at $2,114.53.

XAU/USD daily chart shows technical indicators heading firmly north, although still at extreme overbought readings, supporting the case for a steep correction but far from suggesting the end of the bullish trend. At the same time, moving averages remain far below the current level, with the 20 Simple Moving Average (SMA) heading north almost vertically above the longer ones and converging with the 50% retracement of the aforementioned run at around $2,089.90.

The 4-hour chart supports the case of a bearish extension. XAU/USD trades below a now mildly bearish 20 SMA, while technical indicators aim south within negative levels. Finally, the 100 and 200 SMA maintain their firmly bullish slopes, in line with the dominant trend and suggesting the ongoing decline may well be corrective.

Following a couple of quiet sessions, the US Dollar gathered momentum ahead of the American session opening on Thursday. XAU/USD fell to $2,151.75, not far from the weekly low at $2,150.50, trading a handful of $ above the support area. The USD surged following the release of mixed United States (US) macroeconomic figures, suggesting the Federal Reserve (Fed) may be more cautious with upcoming rate cuts.

The central bank, which is scheduled to meet next Wednesday, anticipated three potential rate cuts this year in its December meeting. However, market players are increasingly betting on a more conservative stance to be announced in the March meeting, as inflation remains high, the labor sector relatively tight, and growth sluggish.

The US released February Retail Sales, which rose a modest 0.6% in the month. Despite improving from the previous -1.1%, the figure missed the expected 0.8% increase. Additionally, the Producer Price Index (PPI) for the same month rose 1.6% YoY, hotter than expected, while the core annual reading held unchanged at 2% against the 1.9% anticipated by market participants. On a better note, Initial Jobless Claims for the week ended March 8 declined to 209K, better than the 218K forecast.

As a result, Wall Street turned red while government bond yields jumped. The 10-year Treasury note currently offers 4.29%, roughly 10 basis points (bps) in the day.

The US will close the week by publishing the March Michigan Consumer Sentiment Index preliminary estimate, foreseen unchanged at 76.9, and Industrial Production and Capacity Utilization for February.

ECB’s Stournaras this morning hijacked the headlines. The Greek governor said rates need to be cut soon: twice before the summer break (in August) and twice before the end of the year. He expects the first one to happen in June. Dutch hawk Knot sided with his Greek colleague insofar he is penciling in June for the kick-off. He refrained from giving guidance for the meetings thereafter though. Chief economist Lane held a more neutral approach, sticking to Lagarde’s message last week that a lot more data (including about wages) will be available at this potentially pivotal June meeting. While calls for ECB cuts in 2024 grow louder and bolder, a different scenario is panning out in front of the Fed. February producer price inflation easily topped forecasts across the board. The headline figure came in at 0.6% m/m, double the 0.3% consensus. The narrowest core gauge (ex. food, energy and trade) rose 0.4%. Year-on-year readings (between 1.6% – 2.8%) added more evidence to a bottoming out process that started somewhere end of last year. Weekly jobless claims meanwhile surprised to the downside. Applications for unemployment benefits last week dropped to a low 209k, from a downwardly revised 210k. Retail sales in February didn’t live up to expectations to more or less overcome the January dip. But with the broader (labour market) picture nicely intact, that didn’t prevent core bond yields from adding between 4.4 and 8.6 bps in the US. The 2-y and 10-y yield are single-digit bps away from their YtD highs. German yields add 2.6 (2-y) to 5.3 (10-y) bps in sympathy though one starts to wonder how much longer the front-end can join the US trend when ECB members continue to talk so openly about cuts. Either way, most tenors in Germany are also closing in on their YtD highs.

The dollar, for the first time since long, finally starts profiting from favourable interest rate differentials and a weakish risk environment (stocks slightly down in the US). EUR/USD slips from an intraday high of 1.0955 to currently test the 1.09 big figure. DXY (trade-weighted) found support at the 50% retracement on the December-February rebound (102.8) before moving beyond 103. USD/JPY and EUR/JPY parted ways with the former rising to 148 but the latter easing a few ticks to 161.5. The Japanese newspaper Jiji reported the BoJ is poised to end negative rates at its meeting next week, though adding that tomorrow’s wage negotiation results play a key role in the final decision. Sterling holds the upper hand against most G10 peers, including the euro (but not the USD). EUR/GBP snapped a three-day winning streak by erasing yesterday’s gains (0.8541).

Prepared by: Mr. SAM KIMA, Senior Vice President