The recent data release from last week did not reveal any surprises and aligned closely with what was anticipated. The key inflation measure in the US, the Personal Consumption Expenditure (PCE) data for August, offered some comfort to foreign exchange traders.
Despite strong consumer spending, the data indicates that inflation remains elevated due to demand, reflecting a robust momentum in the US economy driven by consumer demand and solid economic growth.
Overall, the sentiment regarding the US dollar remained optimistic following Fed Chairman Powell’s more hawkish comments. He emphasized the need for the Federal Reserve to strike a balance between inflation and the labour market when making interest rate decisions.
The latest jobless claims data, which exceeded expectations, contributed to the strengthening of the US dollar. Meanwhile, oil emerged as the biggest gainer last week, appreciating by nearly 5 percent. This may be attributed to a policy change in the Eurozone concerning Russian oil purchases, which has decreased and, in turn, supported rising oil prices.
This week, attention will shift to the Non-Farm Payrolls (NFP), unemployment rate, and wage data. The market suggests that the recent decline in employment figures is primarily due to a reduced demand for labour, largely driven by stringent immigration laws rather than overall economic conditions.
Last week, gold saw a notable gains as central banks and investors continued to buy into price dips, pushing the metal to test new all-time highs of US$ 3,791.
The trading dynamics for gold have shifted dramatically. Previously, trading was largely influenced by investors and traders in London and New York.
However, lately, the buying activities of central banks and positioning by bank traders have become the primary factors driving market volatility.
Other elements that affect gold prices include the geopolitical climate and an uncertain economic outlook, which has led to a decrease in the share of central banks foreign exchange reserves held in US dollars in favour of gold.
Estimates indicate that the average portfolio of global central bank reserves has increased by more than 10% when considering total weight relative to value. Additionally, since the post-pandemic crisis, their net annual purchases have surpassed 1,000 tons.
Policies aimed at de-dollarization and the rise of digital currencies also play a significant role.
While investment in the Chinese Renminbi seems to have declined, there is increasing optimism about investing in China’s digital Yuan.
Global central banks have not shown a strong interest in cryptocurrencies or stablecoins, and it is likely that they are hesitant to invest in Bitcoin due to concerns over stability.
BRICS nations are becoming more serious about diversifying their investments beyond US dollars and are showing greater interest in increasing their gold holdings. Geopolitical issues remain a top concern for global market investors, prompting central banks and asset managers to confidently buy and expand their gold portfolios.
However, this doesn’t eliminate the possibility of market corrections. Traders will continue to seek reasons for adjustments, and buying interest could emerge to drive gold prices to even higher levels.
At the current momentum, I believe the market this year may move closer to $ 4,000 instead of $ 3,400 or $ 3,500.
On the data front, pending home sales for August will be released on Monday, followed by JOLTS job openings and consumer confidence data on Tuesday. On Wednesday, attention will turn to ADP nonfarm payroll figures, along with ISM manufacturing and PMI reports. Later, on Thursday, weekly jobless claims will be released. The most important data for the week, non-farm payrolls (NFP) report will be released on Friday.
WEEKLY OUTLOOK — Sep 29-Oct 3
GOLD @ US$ 3760— This week, we might see excessive volatility in gold prices. It is possible for prices to rise and test new highs before undergoing a correction. Key levels to keep an eye on are US$ 3810, which could be reached if US$ 3796 is broken, leading to a test of US$ 3842 levels. However, there is a risk that a drop below US$ 3725 could lead to a test of the US$ 3692-98 range.
EURO @ 1.1702— The key level to monitor is between 1.1610-20, which is expected to hold. On the upside, it must break through 1.1880 to reach 1.1940. Otherwise Euro will trade in a narrow range.
GBP @ 1.3405— Pound Sterling is supported at 1.3320, which is expected to hold. If it rises above 1.3490, it could move towards 1.3570. Otherwise, it might drop to 1.3280.
JPY @ 149.51— The critical level to watch is 150.48, which is expected to remain intact, we could see a decline toward 149.10. However, the USD must hold 148.70-80 levels to recover its strength for further gains.
He tweets @asadcmka
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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