-       GBP/USD kept an erratic performance in place throughout this week. -       Firm flash PMIs provided some colour to the British pound in past days. -       The BoE is largely expected to keep rates unchanged. It was a fairly choppy week for the British pound, which prompted GBP/USD to maintain its consolidative fashion between 1.2600 and 1.2800. Dollar dynamics ruled sentiment in the past week Despite the ongoing choppiness, GBP/USD remained at the mercy of the developments gyrating around the Greenback, which has also been moving within a range-bound trade when gauged by the USD Index (DXY). Among the bright spots supporting a constructive bias for the Pound  Sterling (GBP) an auspicious reading emerged from advanced PMIs for the current month, which improved from the December's prints in both the manufacturing and the services sectors. Adding to the above, there were also positive surprises from the Public Sector finances results and Consumer Confidence tracked by GfK. Somewhat eclipsing that data emerged worsening figures from the Consortium of British Industry (CBI) Industrial Trends Orders and CBI Distributive Trades Survey. The BoE and the Fed steal the show next week With the BoJ and the ECB meetings already out of the way, investors' attention will now shift to the upcoming FOMC and BoE events on January 31 and February 1, respectively. The broad-based consensus among market participants sees both central banks refraining from any move on rates, in line with the decisions by the BoJ and the ECB to keep their policy rates on hold. The Bank of England (BoE) is widely anticipated to maintain its 5.25% bank rate, although this time a unanimous vote looks more likely (than the usual 6-3 pattern) on February 1, aligning with both consensus and current market expectations. Investors are also seen closely watching the updated projections and the subsequent press conference. Despite this anticipated decision, the likelihood of a dovish message from the bank appears less probable, leaning instead towards a more cautious stance particularly in light of the rebound in UK inflation witnessed during December. GBP/USD daily chart GBP/USD: Technical Outlook The GBP/USD appears contained by the neighbourhood of 1.2600 for the time being. If sellers retake control, there is direct competition at the so-far 2024 low of 1.2596, set on January 17. If Cable falls below this level, a challenge of the 200-day Simple Moving Average (SMA) at 1.2554 may develop ahead of the December 2023 bottom of 1.2500 (noted on December 13). Further south comes the intermediate 100-day SMAs at 1.2455 prior to the November low of 1.2187, the October low of 1.2037 (October 3), the critical 1.2000 level, and, ultimately, the 2023 bottom of 1.1802, which was achieved on November 10. If the bullish trend accelerates, the pair may revisit the December top of 1.2827. (observed on December 28). The breakout of the latter could pave the way for a move to the weekly peak of 1.2995 of July 27, 2023, the critical threshold of 1.3000 only a little higher. The daily Relative Strength Index (RSI) improves to 56, and the MACD remains in the positive zone  

Gold continued to move up and down in a relatively tight range above $2,000. The near-term technical outlook highlights XAU/USD's indecisiveness. Fed policy announcements and US jobs data will be watched closely by investors next week.  Gold struggled to find direction and closed the week little changed. Although the US Dollar (USD) benefited from some upbeat data releases, escalating geopolitical tensions helped XAU/USD hold its ground. The Federal Reserve's (Fed) first policy meeting of the year and January jobs data from the US could significantly impact Gold's valuation next week. Gold price moved sideways this week Gold edged higher to start the week as the improving risk mood made it difficult for the USD to find demand in the absence of high-tier data releases. A Bloomberg report claiming that China was considering an equity market rescue package worth about 27 billion USD triggered a rally in global equity indexes. On Tuesday, Gold failed to build on Monday's gains, while the benchmark 10-year US Treasury bond yield held steady above 4%. S&P Global PMI data showed on Wednesday that the business activity in the US private sector expanded at an accelerating pace in January. S&P Global Composite PMI improved to 52.3 from 50.9 in December, Services PMI rose to 52.9 and Manufacturing PMI recovered above 50, pointing to an expansion in the manufacturing sector for the first time since April. In turn, the benchmark 10-year US Treasury bond yield edged higher, causing XAU/USD to drop to a weekly low below $2,020. Commenting on the PMI report, "an encouraging start to the year is indicated for the US economy by the flash PMI data, with companies reporting a marked acceleration of growth alongside a sharp cooling of inflation pressures," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. In the meantime, escalating geopolitical tensions helped Gold limit its losses. Iran-backed Houthi rebels in Yemen reportedly targeted two US-owned commercial ships sailing close to the Gulf of Aden late Wednesday.  The Bureau of Economic Analysis (BEA) reported on Thursday that the real Gross Domestic Product (GDP) of the US expanded at an annual rate of 3.3% in the fourth quarter, surpassing the market expectation for a 2% growth by a wide margin. Although the immediate market reaction to the upbeat GDP data provided a boost to the USD, retreating US yields allowed XAU/USD to find a foothold. Other US data showed that the weekly Initial Jobless Claims rose to 214,000 in the week ending January 20 from 189,000 in the previous week and Durable Goods Orders remained unchanged in December to miss the market expectation for a 1.1% increase. Moreover, GDP Price Index for the fourth quarter declined to 1.5% from 3.3% in Q3 and the Personal Consumption Expenditures (PCE) Price Index rose 2% on a quarterly basis, matching the third quarter's increase. On Friday, the BEA announced that inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, held steady at 2.6% on a yearly basis in December. The annual Core PCE Price Index, the Fed's preferred gauge of inflation, softened to 2.9% in the same period from 3.2% in November, coming in slightly below the market forecast of 3%. The USD struggled to gather strength after this report and allowed Gold to stabilize above $2,020. Gold price faces key risk events next week On Tuesday, December JOLTS Job Openings and the CB Consumer Confidence Index data for January will be featured in the US economic docket. Ahead of the Fed's monetary policy announcements on Wednesday, however, investors are unlikely to take large positions based on these data. The Fed is widely expected to leave the policy rate unchanged at 5.25%-5.5% following the first meeting of the year. According to CME FedWatch Tool, markets are pricing in a nearly 50% chance that there will be a 25 basis points rate cut in March. Ahead of the blackout period, several Fed policymakers pushed back against this expectation, helping the USD to stay resilient against its rivals and the benchmark 10-year yield to stabilize above 4%. In case the policy statement, or Chairman Jerome Powell at the press conference, clearly rules out a rate reduction in March, the market positioning suggests that there is room for further USD strength. On the other hand, a fresh USD sell-off could be seen if Powell leaves the door open for a rate cut at the next meeting. In this scenario, a sharp decline in the 10-year yield below the key 4% level could open the door for a decisive rally in XAU/USD. Participants will also pay close attention to comments on the inflation outlook amid growing concerns over energy prices rising on supply issues.  Later in the week, the Bureau of Labor Statistics will release January jobs report. Nonfarm Payrolls...

The dovish shift in Fed forecasts in December – with three rate cuts pencilled in for 2024 – incentivised the market to push even more aggressively in pricing cuts. However, they appear to have gone too far too fast for the Fed's liking, even though inflation is almost back to target. Expect more pushback against a March rate cut The Federal Reserve is widely expected to keep the Fed funds target range unchanged at 5.25-5.50% next Wednesday while continuing the process of shrinking its balance sheet via quantitative tightening – allowing $60bn of maturing Treasuries and $35bn of agency mortgage backed securities to run off its balance sheet each month. At the December Federal Open Market Committee meeting there was undoubtedly a dovish shift. We got an acknowledgement that growth "has slowed from its strong pace in the third quarter" plus a recognition that "inflation has eased over the past year". With policy regarded as being in restrictive territory, the updated dot plot of individual forecasts indicated the committee was coalescing around the view that it would likely end up cutting the policy rate by 75bp this year. This was interpreted by markets as giving them the green light to push on more aggressively. Given the Fed's perceived conservative nature the risks were skewed towards them eventually implementing even more than it was publicly suggesting. At one point seven 25bp moves were being priced by markets with the first cut coming in March. A March interest rate cut looked too soon to us given strong growth and the tight jobs market, so the recent Fed official commentary downplaying the chances of an imminent move hasn't come as a surprise. Markets are now pricing just a 50% chance of such a move with nothing priced for the 31 January FOMC. Fed funds target rate (%) and the period of time between the last rate hike and first rate cut in a cycle Source: Macrobond, ING But the statement will shift to neutral In terms of the accompanying statement we do expect further changes. The December FOMC text added the word "any" to the sentence "in determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time", offering a clear hint that that interest rates have peaked. The commentary ahead of the blackout period had suggested the Fed saw no imminent need for a rate cut, so we expect it to continue to push back against an early move, but continuing talk of rate hikes in the press statement is not going to look particularly credible to markets. The Fed could choose to go back to its previous stock phraseology (used in January 2019 when it held policy steady after it had hiked rates one last time in December 2018) that "in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective". And rate cuts are coming Despite this, we believe the Fed will end up delivering substantial interest rate cuts. We continue to see some downside risks for growth in the coming quarters relative to the consensus as the legacy of tight monetary policy and credit conditions weighs on activity and Covid-era accrued household savings provide less support. Inflation pressures are subsiding with the quarter-on-quarter annualised core personal consumer expenditure deflator effectively saying 'job done' after two consecutive quarters of 2% prints. The Fed's current view is that the neutral Fed funds rate is 2.5%, signalling scope for 300bp of rate cuts just to get us to 'neutral' policy rates. Moreover, the 'real' policy rate, adjusted for inflation, will continue to rise as inflation moderates. We believe the Fed will choose to wait until May to make the first move, with ongoing subdued core inflation measures giving it the confidence to cut the policy rate down to 4% by the end of this year versus the 4.5% consensus forecast, and 3% by mid-2025. This will merely get us close to neutral territory. If the economy does enter a more troubled period and the Fed needs to move into 'stimulative' territory there is scope for much deeper cuts. The Fed is knee-deep in technical adjustments, and there's likely more to come on the QT front One item has already been dealt with ahead of the FOMC meeting – the end of the Bank Term Funding facility. See more on that here. One of the takeaways is the notion that the Fed is comfortable with the system. That at least sends a comfort signal to the market. In that vein, the Fed ignited an accelerated discussion on potential tapering of the its quantitative tightening (QT) agenda ahead. Currently...

Gold price attracts some buyers for the second straight day, though lacks follow-through. Sliding US bond yields, along with geopolitical tensions, lend some support to the metal. The USD stands tall near the monthly peak and caps any further gains for the XAU/USD. Traders also seem reluctant and prefer to wait for the release of the US PCE Price Index. Gold price (XAU/USD) edges higher for the second successive day on Friday, albeit lacks follow-through as traders opt to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index before placing fresh directional bets. The Federal Reserve's (Fed) preferred inflation gauge, or the Core PCE Index, which excludes more volatile food and energy costs, is seen easing from the 3.2% YoY rate to 3% in December and pointing to further progress on the disinflationary process. That said, robust US economic growth might complicate the path forward for monetary policy as cutting interest rates too quickly or too aggressively might pose a significant risk of reigniting inflation. In contrast, sticky inflation might give the Fed more headroom to keep rates higher for longer, suggesting that the path of least resistance for the non-yielding yellow metal is to the downside. Heading into the key data risk, the US Dollar (USD) retains its bullish bias near the highest level since December 13 and acts as a headwind for the Gold price. The US Bureau of Economic Analysis (BEA) published the first estimate of the US Gross Domestic Product (GDP) on Thursday, which showed that the world's largest economy expanded at an annualized rate of 3.3% in the fourth quarter. This marks a deceleration from the 4.9% growth recorded in the third quarter, though was well above the market expectations for a reading of 2% and raised hopes for a soft landing. Moreover, bets that the Fed might still cut interest rates in March lead to a further decline in the US Treasury bond yields. This, along with concerns that the Israeli-Hamas war could trigger a broader conflict in the Middle East, might continue to lend some support to the safe-haven precious metal. The aforementioned mixed fundamental backdrop warrants some caution before positioning for any firm near-term trajectory as the focus remains glued to the highly-anticipated FOMC monetary policy meeting on January 30-31. Nevertheless, the Gold price seems poised to end in the red for the second straight week, also marking the third week of losses in the previous four, amid the uncertainty over the timing of when the Fed will start cutting interest rates. Technical Outlook From a technical perspective, any subsequent move up beyond the 50-day Simple Moving Average (SMA), currently near the $2,026-$2,027 area, might continue to confront stiff resistance near the $2,040-2,042 supply zone. Some follow-through buying, however, might trigger a short-covering rally and lift the Gold price further to the $2,077 intermediate hurdle en route to the $2,100 round-figure mark. On the flip side, the weekly low, around the $2,010-$2,009 area touched the previous day, could act as immediate support ahead of the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a slide to the 100-day SMA, currently around the $1,975-1,976 area, before the Gold price eventually drops to the 200-day SMA, near the $1,964-1,963 region.

AUD/USD resumes the upside despite dollar gains. The pair so far maintains a rangebound theme around 0.6600. Investors' attention should now shift to the release of inflation figures. The bullish bias appears to be back in action, sponsoring a decent advance in AUD/USD to the 0.6600 neighbourhood once again on Thursday. Looking at the broader picture, it seems the pair remains trapped within a multi-session range around the 0.660 zone. The improvement in the Aussie dollar came despite marked gains in the greenback, while recent news citing further stimulus by the PBoC and the positive session in copper prices and iron underpinned the daily gains in the Aussie dollar. The Chinese factor, in combination with the projected decision by the Reserve Bank of Australia (RBA) to maintain its current policy stance at its meeting in February, is still seen as limiting the upside potential of the pair in the next few weeks, allowing for extra retracements in the short-term horizon. On the same side of the coin emerges the likelihood that the Federal Reserve could continue to delay expectations of an interest rate reduction in the coming months, a scenario that should prop up extra gains in the greenback.   Back to the RBA, the decline in inflation metrics observed in December, along with the continued moderation of the labour market (albeit still relatively tight), seems to have solidified the consensus among market participants that the central bank would keep its rates on hold at its February event. AUD/USD daily chart AUD/USD short-term technical outlook If the AUD/USD recovery becomes more serious, the pair may face the provisional 55-day SMA at 0.6630 prior to the December 2023 peak of 0.6871 (December 28), which is preceded by the July 2023 high of 0.6894 (July 14) and the June 2023 top of 0.6899 (June 16), all of which occur before the critical 0.7000 level. Further consolidation seems the name of the game for the pair when it comes to the 4-hour chart. On the upside, the 100-SMA is presently at 0.6646, followed by the 200-SMA at 0.6682. The breakout of this sector indicates a possible move to peaks near 0.6730. On the downside, there is initial contention around 0.6525. If this zone is breached, no substantial disagreement occurs until 0.6452. The MACD flirts with the positive boundary, while the RSI remains around 52. View Live Chart for the AUD/USD

Summary It was a busy week for foreign central banks, with several offering their first monetary policy assessment of 2024. The Bank of Japan held monetary policy unchanged, but its announcement and updated economic forecasts kept it on track for an April rate hike, in our view. The Bank of Canada's announcement was modestly dovish in tone, suggesting some risk that an initial rate cut could come earlier than our base case for monetary easing in June. The European Central Bank had offered hawkish guidance ahead of this week's meeting, but its announcement was arguably more neutral in tone. Given downbeat economic trends and the ECB's data dependence, our base case remains for an initial rate cut in April, although we acknowledge the risks are tilted toward a later move in June. Finally, the People's Bank of China lowered its Reserve Requirement Ratio to provide long-term liquidity to the market. While that could offer some support to the economy, we still expect China's GDP growth to be slower in 2024 than 2023. Foreign central banks kick off 2024 It was a busy week for foreign central banks, with several institutions making their first monetary policy announcements of this year, and offering insight to the potential paths of their respective monetary policy stances through 2024. The European Central Bank (ECB) monetary policy announcement was perhaps not quite as hawkish as expected. In the lead up to this meeting, ECB President Lagrade suggested a rate cut was likely by or in the summer, and some of the more hawkish policymakers suggested the summer or later. ECB policymakers have also indicated a desire to see early 2024 wage data before adjusting their monetary policy stance. However, considering this leadup, the ECB's policy announcement was perhaps more neutral in tone. The ECB reiterated that it "considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution" toward returning inflation to its 2% medium-term target in a timely manner. The ECB also again highlighted a data-dependent approach to conducting monetary policy. On that front, the ECB said the declining trend in underlying inflation has continued, and that past interest rate increases continue to be "transmitted forcefully into financing conditions. Tight financing conditions are dampening demand, and this is helping to push down inflation." While ECB policymakers have guided market participants toward summer rate cuts, their assessment on the Eurozone economy appears notably underwhelming. As a result some market participants, including ourselves, still see potential for ECB easing to come earlier, during the spring. This dichotomy between the ECB's policy guidance and its assessment of the economy was also apparent during ECB President Lagarde's press conference. She said the consensus was that a rate cut debate was premature, and she stood by her comments on summer rate-cut timing. At the same time, she said data signal economic weakness in the near-term, that the December inflation rebound was less than expected and almost all underlying measures fell in December. She added that short-term inflation expectations gauges are down markedly, and did not over-emphasize the inflationary risks from the Red Sea crisis. Combining the policy guidance with the assessment of the economy, the upcoming data should still be key as to the exact timing of an initial ECB rate cut. If GDP growth stays soft, sentiment surveys remain in contraction territory and underlying inflation continues to improve, then the rate cut debate could intensify in March and April, and monetary easing in April (for now still our base case) remains possible. However, should activity or sentiment data show some resilience, or improving inflation trends get interrupted, the June meeting will come more clearly into focus as the most likely timing for initial ECB easing. Source: Datastream and Wells Fargo Economics Source: Bloomberg Finance L.P. and Wells Fargo Economics Download the full international commentary