Gold price holds onto gains as Fed rate-cut bets advance, Fed Powell’s testimony in focus

• Gold price trades near a two-month high as Fed rate-cut bets for June deepen.
• Weak US Manufacturing PMI data weighs heavily on the US Dollar.
• Fed Powell may provide fresh insights on the timing for rate cuts this week.

Gold price (XAU/USD) hovers near a two-month high around $2,085 in Monday’s European session. The precious metal clings to gains amid increasing expectations of an interest-rate cut by the Federal Reserve (Fed) in its June monetary policy meeting. 

However, the uncertainty over rate cut expectations could rebound this week as Fed Chair Jerome Powell is set to comment on inflation, interest rates, and the economy in his testimony before Congress. 

Jerome Powell is expected to remain hawkish as Fed policymakers want to see inflation easing for months before changing their monetary policy stance. Strong labor market conditions allow them to patiently observe inflationary pressures and cut interest rates only after there is convincing evidence that inflation will decline to the desired target of 2%.

Apart from Fed Powell’s commentary, economic data such as the United States’ Institute of Supply Management (ISM) Services PMI, JOLTS Job Openings, and Nonfarm Payrolls data will remain in the spotlight.

Meanwhile, the US Dollar Index (DXY), which measures Greenback’s value against six major currencies, drops to 103.80, as the Manufacturing PMI surprisingly fell by 1.3 points to 47.8 from 49.1 in January. Investors had projected an increase to 49.5. The New Orders Index for the manufacturing sector fell back into contraction territory at 49.2 from 52.5 in January.

Daily digest market movers: Gold price demonstrates strength ahead of key data

• Gold price trades closely to near the two-month high around $2,085 as investors’ expectations for Federal Reserve rate cuts in the June policy meeting have increased. As per the CME FedWatch tool, traders see a little over 57% chance for a rate cut by 25 basis points (bps) in the June meeting above from 53%, noted on Friday.
• The expectations for rate cuts in June have escalated as the United States core Personal Consumption Expenditure Price Index (PCE) data for January was in line with market consensus.
• This week, the strength in the Gold price will be tested by the US ISM Services PMI and labor market data for February, as well as Fed Chair Jerome Powell’s testimony before Congress.
• Fed Powell is set to speak on Wednesday and Thursday. His outlook on interest rates could influence market expectations for the timing of rate cuts. Powell may reiterate the need for more evidence to confirm that inflation will sustainably return to the 2% target.
• Resilient labor market conditions have deepened uncertainty about inflation returning to 2%. On Friday, Federal Reserve Governor Adriana Kugler said: "I am cautiously optimistic that we will see continued progress on disinflation without significant deterioration of the labor market.”
• This week, the US Nonfarm Payrolls (NFP) data will provide a fresh outlook on the labor market. Before the official labor market data, investors will focus on the Automatic Data Processing (ADP) Employment Change data, which will be published on Wednesday. The expectations for fresh private payrolls are at 150K, higher than the prior reading of 107K.
• Meanwhile, the US Dollar fell sharply as the weak US ISM Manufacturing PMI for February suggests the strong US economy is releasing some heat. Going forward, the US ISM Services PMI, which will be published on Tuesday, will provide more guidance on economic prospects.

Technical Analysis: Gold price strengthens after a triangle breakout

Gold price rallies after an upside break of the Symmetrical Triangle pattern formed on a daily timeframe. The breakout of the aforementioned chart pattern exhibits a volatility expansion, which leads to wider ticks on the upside and heavy volume. The precious metal could extend its upside towards the horizontal resistance plotted from the December 4 high at $2,144.48.

The upward-sloping 20-day Exponential Moving Average (EMA) is at $2,040, indicating strong demand in the near term.

The 14-period Relative Strength Index (RSI) climbs above 60.00, indicating a bullish momentum ahead amid the absence of divergence and oversold signals.