With the Fed and ECB meetings coming up next week, the current week was expected to be somewhat transitional from the outset. Economic data released during the week painted a somewhat tepid picture of the global economy, with both weak industrial production and industrial orders figures in Germany for April, a lower-than-expected ISM index for the US service sector and disappointing export data from China all underpinning the narrative of continued sluggishness in economies around the globe.
US and Canadian central banks raise key interest rates
However, as inflation rates stubbornly remain at extremely high levels, central banks find themselves in an ongoing predicament. Further key rate hikes will likely continue to dampen the economic outlook, but the fight against inflation remains the priority. The consequences: After rate hike pauses, both the Australian and Canadian central banks took action this week, each raising key interest rates by 0.25 percentage points.
These developments also had an impact on market expectations regarding the US Federal Reserve. Although most market players expect the Fed to keep its feet on the ground next Wednesday, they expect a further raise in key interest rates in July. Interest rate cuts are now largely priced out until the end of the year. On Wednesday, therefore, the yields of US Treasuries also rose significantly, which in turn boosted the US dollar.
US labour market data weighs on dollar
After the data published yesterday on initial US jobless claims indicated the highest level since October 2021, the US dollar weakened somewhat, which in turn supported gold prices.
While the precious metal traded at 1,981 US$ per ounce on Friday morning last week, it dropped to 1,950 after publication of the US labour market report on Friday afternoon, which again showed significantly higher-than-expected job creation in May. On Monday, it slackened further to a one-week low of around 1. 938.50. After an interim recovery to 1,970 on Wednesday afternoon, it again weakened to 1,940 after the interest rate hike in Canada. The roller coaster ride continued: yesterday, gold climbed to 1,970 and traded at 1,964 this morning at 8:00.
Xetra-Gold with slight weekly loss
Xetra-Gold also traded slightly lower, starting out last Friday morning at 59.15 € per gram. After dropping to 58.30 on Monday, it jumped to 59.20 on Tuesday, but again slowed to 58.30 yesterday. After a quick recovery to 58.80, it was expected to start trading today at 58.65.
Next week’s focus will be on US consumer price data for May, scheduled for publication on Tuesday, before Wednesday’s Fed meeting and on Thursday that of the ECB, which should all make for plenty of market movement.
I wish all readers a happy and calm weekend.