EUR/USD Rebounds Amid ECB Speculation; Gold Hits Record Highs

Despite the underlying Eurozone economy’s weaknesses, investor sentiment continues to favor the Euro against the US Dollar as rising chances of the second jumbo 50 bp rate cut from the Fed remain the primary headwind for the US currency:

Still, the Euro's performance against other major currencies remains subdued due to growing speculation that the ECB may cut the Rate on Deposit Facility for the second consecutive time next month. If this materializes, it would mark the third dovish decision by the ECB this year, signaling persistent concerns about the Eurozone's economic growth.
The unexpected contraction in the Eurozone Composite PMI for September has amplified these concerns. The flash HCOB PMI report, compiled with S&P Global, highlighted a downturn that caught many investors off-guard. Such data intensifies the spotlight on ECB President Christine Lagarde's upcoming speech. Traders should pay close attention to her remarks for cues on future monetary policy and inflation outlook.
On the commodities front, Gold has rallied to new record highs, reaching the $2,680s. This surge is largely influenced by recent decisions from the Chinese and Swedish Central Banks to slash interest rates. Lower interest rates reduce the opportunity cost of holding non-yielding assets like Gold, making it more attractive to investors seeking safe havens amid economic uncertainty.
In the United States, robust New Home Sales data for August and strong Mortgage Applications figures have somewhat allayed fears of a hard landing for the economy. However, market participants are still pricing in a significant 50 basis point interest rate cut from the Federal Reserve at its upcoming November meeting. The labor market remains a focal point, with Jobless Claims data potentially influencing both the USD and Gold prices.
According to the interest rate futures, the probability of a substantial 50 bps cut stands above 60%, outpacing the likelihood of a modest 25 bps reduction. This expectation continues to pressure the US Dollar, providing additional tailwinds for Gold, which is predominantly priced and traded in USD:

Federal Reserve Chairman Jerome Powell's scheduled speech is another critical event on the horizon. His comments could reshape market expectations regarding future Fed policy, especially in light of recent concerns expressed by Fed policymakers over deteriorating labor market conditions. Notably, only Fed Governor Michelle Bowman among the FOMC members has advocated for a gradual start to the rate-cut cycle with a 25-bps reduction, which hints at significant dovish consensus among the Fed policymakers.
Lastly, investors should keep an eye on the upcoming release of the core Personal Consumption Expenditures Price Index data for August. Expectations are for an increase to 2.7% from July's 2.6%, which could have significant implications for inflation expectations and monetary policy decisions.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.