Gold price remains within tight range ahead of US core PCE data

LONDON (December 21) Gold price (XAU/USD) struggles to come out of woods as investors are awaiting the release of the United States core Personal Consumption Expenditure Price Index (PCE) for November, due on Friday. A report signalling that inflation remains sticky could slow down a broader rally in the Gold price as it would likely force Federal Reserve (Fed) policymakers to opt for a more restrictive monetary policy stance.

Meanwhile, Philadelphia Fed Bank President Patrick Harker joined the club and pushed back expectations of upcoming cuts in borrowing costs. Harker said he sees a soft landing, but warned that unemployment could rise moderately. 

The US Dollar has been on the back foot due to soaring expectations of rate cuts by the Fed, but some still believe that the US central bank is not going to lower rates sooner amid the resilience of the US economy.

Daily Digest Market Movers: Outlook for Gold price remains broadly upbeat 

• Gold price struggles for a direction as investors await the United States core PCE Price Index data for November, which is scheduled for Friday.
• Fed’s preferred inflation measure is likely to provide clues over how long the central bank is required to keep interest rates in a restrictive trajectory.
• Themonthly core PCE price index is expected to increase at a steady pace of 0.2%. On an annual basis, PCE inflation is expected to  decelerate to 3.3% from 3.5%.
• A sticky underlying inflation report may trim expectations of early rate cuts by the Federal Reserve and compel policymakers to keep interest rates in the restrictive trajectory for longer until the return of inflation to 2% is confirmed.
• This could also improve appeal for the US Dollar and benefit irisk-sensitive assets.
• In the Summary of Economic Projections (SEP) released last week, all Fed policymakers favoured no further rate hikes and the majority of members supported a decline in borrowing costs by 75 basis points (bps) in 2024.
• Atlanta Fed Bank President Raphael Bostic, New York Fed Bank President John Williams, and Philadelphia Fed Bank President Patrick Harker showed their openness to lowering interest rates, but said that an immediate cut isn’t expected. 
• Harker said  that one major reason to cut interest rates next year is that businesses are struggling to augment higher interest obligations.
• While asked about the possibility of a soft landing, Harker said that it is quite possible, but warned that the Unemployment Rate could rise moderately. A ‘soft landing’ is a scenario in which inflation returns to 2% without triggering a recession
• In addition to the US core PCE price index data, investors will also focus on the Durable Goods Orders data for November, also due Friday. 
• Fresh orders for Durable Goods are expected to increase by 2.2% against a decline of 5.4% a month earlier. A higher-than-anticipated increase in new orders would provide some cushion to the US Dollar.
• Deepening hopes of early cuts in borrowing costs by the Fed have weighed down US Treasury yields further. The 10-year US Treasury yields have dropped to near 3.87%.

FXStreet