Gold rises ahead of key inflation figures

US inflation data is largely expected to drop to 5.2%

By Nadia Elbilassy | @Nadia Elbilassy | 5 July 2023

Midday Market update
  • Factory production in Germany rises by 2%

  • CPI figures are supposed to drop from 6.0% to 5.2%

  • The Canadian dollar remains stable, waiting for the interest rate decision

Gold rebounds above the $2000 key support

Gold prices have risen due to the weakening of the US dollar index, while the market awaits the release of US inflation data and the International Monetary Fund's expectations for the global economy.

According to the latest report by the International Monetary Fund, the US economic growth is expected to reach 1.6%, while the Eurozone's growth is expected to reach 0.8%. However, the UK economy is expected to contract by around 0.3%. The report also stated that the global economy is not expected to return to pre-pandemic growth rates.

The market is closely monitoring important economic data, particularly the Consumer Price Index, which is expected to be released today, and the Producer Price Index, which will be released tomorrow. Investors are keeping a close eye on these data to determine whether the US Federal Reserve Board will raise interest rates during its next meeting.

Gold prices reclaimed the $2000 levels during yesterday's trading and have continued to rise today, trading at around $2014 per ounce.

Euro rises on the dollars backfoot

The euro saw an increase against the US dollar during yesterday's trading due to the weakening of the US dollar index against major currencies. Today, the euro began trading on a positive note against the US dollar, with the pair being traded near $1.0927.

Recent data from the Eurozone showed some stability, with factory production in Germany increasing by about 2% in February, exceeding market expectations. This has raised hopes that the Eurozone's largest economy could avoid a hard recession.

However, Christine Lagarde, the governor of the European Central Bank, stated earlier that although the policy of tightening monetary policy has started to show results, core inflation still remains too high.

The Canadian dollar stabilizes ahead BOC decision

Investors are anticipating the interest rate decision from the Bank of Canada today, as well as the US Consumer Price Index data. The US dollar began trading today with a slight decline against the Canadian dollar, with the pair being traded near 1.3452.

Caroline Wilkins, a member of the Bank of Canada, stated that the bank needs to see more economic evidence before assessing whether the current monetary policy is sufficient to bring inflation back to the target of 2%. With Canadian inflation still above the target, the Bank of Canada is particularly concerned about the upward risks of the Consumer Price Index.

Tony Gravelle, Deputy Governor of the Bank of Canada, also indicated that the bank is closely monitoring the pressures on the global banking system before issuing its next interest rate decision and monetary policy report.