XAU/USD retreats as US data strengthens USD, dampens Fed rate cut hopes

• Gold’s downward trend continues, losing more than 1% due to strong US Retail Sales data and a surge in US Treasury yields.
• The upward trajectory of the US Dollar Index to a five-week high and hawkish Fed comments contribute to Gold’s decline.
• Traders focus shift on upcoming US unemployment and consumer sentiment data as they recalibrate the Fed’s interest rate cuts expectations.

Gold price is on the back foot, losing more than 1% in the back-to-back trading sessions on Wednesday, as solid economic data from the United States (US) sent US yields rising while traders scramble to pare Federal Reserve’s rate cut bets.

XAU/USD losses amid rising US yields, as traders price out almost a 50% chance of Fed rate cut in March

A solid US Retail Sales report was the main reason for Gold’s fall as US Treasury bond yields continued to aim higher. The US Department of Commerce showed that sales in December exceeded forecasts of 0.4% and jumped 0.6%. The data boosted the Greenback to a five-week high of 103.69, according to the US Dollar Index (DXY), and US Treasury bond yields continued to advance.

Expectations for an interest rate cut by the Federal Reserve (Fed) plunged from 63% a day ago to 52% after today’s data and Tuesday’s remarks of Fed Governor Waller that there is “no reason to move as quickly or cut [interest rates] as rapidly as in the past,” suggesting a more cautious approach to monetary policy adjustments. Despite this caution, he is willing to support rate cuts if there is a definitive decrease in inflation.

Lately, Industrial Production (IP) in the US has expanded by 0.1%, exceeding the forecast and the previous month’s 0% increase, helped by a pickup in motor-vehicle production linked to the United Auto Workers (UAW) strike.

Sources cited by Reuters said, “Markets were betting that the Fed was starting to cut rates already at the end of the first quarter of this year, and now they’re recalibrating a bit after hawkish comments from some members of the Federal Reserve.”

Ahead of the week, the US calendar will feature further Fed speakers, along with unemployment claims data on Thursday and the release of the University of Michigan’s (UoM) Consumer Sentiment poll.

XAU/USD Price Analysis: Technical outlook

The XAU/USD diving below the 50-day moving average (DMA) exacerbated the drop toward the $2001 year-to-date (YTD) low. Although buyers of the non-yielding metal moved in and lifted the spot price to current levels, Gold is at the brisk of extending its losses, below the $2000 mark. A decisive break of that level will expose the confluence of the 100 and 200-DMAs at around $1971/$1963, respectively.