Gold Climbs Ahead of Inflation and the GBP Jumps on Positive Data!


  • The UK Claimant Count Change and Average Earnings Index both read higher than analysts’ expectations, supporting the Pound.
  • The best performing currency of the day so far continues to be the Pound after positive economic data. However, the main price driver of the week will be tomorrow’s UK inflation rate.
  • The US Dollar Index rose during the Asian session but is relinquishing gains as we approach the European open. According to analysts, today’s inflation reading may need to be considerably higher to support the Dollar.
  • USA100 and SNP500 decline as investors prefer to “cash in” profits before this afternoon’s inflation reading.
  • Gold rises this morning ahead of today’s inflation reading and may gain momentum if inflation declines as per analyst’s expectations.

GBPJPY – UK Confirms Stronger Employment Data!

The GBPJPY trades at its highest level in almost 9-years after rising 0.35% due to the positive UK economic data. The UK’s Claimant Count Change, which confirms the increase in the number of citizens claiming benefits, rose by 14,100 instead of 15,200. The lower figure is known to support the GBP; however, economists are still concerned the unemployment benefits will continue to rise. The UK has not seen unemployment claims decline since June 2023.

In addition to this, the exchange rate was supported by the Average Earnings Index which rose from 5.6% to 5.8%. This can support the economy, consumer demand and also keep inflation higher. As a result, the flow of the economy remains healthy, and the regulators may need to keep interest rates higher to tackle inflation. This is the main reason why the Pound is rising. Nonetheless, this will be in vain if tomorrow’s inflation release reads lower than expectations. Analysts expect UK inflation to rise from 4.0% to 4.1%.

Japan is any major news or data influencing the Yen. Therefore, the currency is mainly influenced by technical aspects related to the pricing as well as Dollar-sentiment. Any Dollar weakness can support the Yen. In terms of technical analysis, the price is seeing divergence which is known to indicate price weakness and a possible collapse. The price is also close to resistance levels; however, the price is not yet receiving any direct sell signals.

XAUUSD – Gold Rises Ahead of Inflation Release

The price of the Japanese Yen and the Dollar is not showing any signs of major gains over the past week. The poor performance is positive for Gold, which is competing with other safe haven assets. However, even so, the price of Gold has also struggled over the past week but is increasing in value this morning. The price of the XAUUSD is trading 0.28% higher and has risen for 4-hours consecutively without experiencing any retracements.

The price of the commodity will also largely be determined by this afternoon’s US inflation rate and Core inflation. Analysts believe Core Inflation will decline from 3.9% to 3.7%, the lowest since 2021. Furthermore, analysts also expect inflation to decline 0.5%. If inflation does indeed see such a strong decline, the price of Gold may rise. This is because investors will start to price in an interest rate cut in March again. Therefore, investors may opt to invest in Gold to mitigate risk or hedge against inflation.

However, the latest Gold report does not show any indication of investors believing Gold will rise. Last week, the “bulls” opened 222,000 positions in the asset, and the “bears” opened 7,575,000 positions, increasing their number for the first time in two months. Though the report is from last week, we do not know how investors have reacted since. Today’s price action will fully depend on the inflation rate.

USA100 – Investors Cash-In Profits

The USA100 was unable to hold onto gains as the assets rose to a new all-time high. According to analysts, the asset is potentially witnessing investors cashing in some profits before the inflation release. The price of the USA100 was largely dampened by the decline in Tesla (-2.81%) and Adobe (-2.77%). Adobe came under pressure due to weaker than expected forecasts. However, Airbnb rose 4.20% and is due to release their earnings data this evening after market close.

If the inflation level does see a significant decline as expected, and even if the decline is slightly weaker, the stock market can be supported in the medium to long term. Though, investors should note it is also important earnings continue to perform well. Investors are particularly keen to see the earnings report for Airbnb, Cisco (tomorrow) and Applied Materials (Thursday). All three stocks are in the top 50 stocks with the highest weight within the index.

 

Michalis Efthymiou

Market Analyst

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