As we begin a new week, gold continues to set new record levels. Last week, inflation data was released from Turkey. Inflation was announced at 42.12%, slightly above expectations. Inflation data from the Eurozone was also released, with expectations of 2.5%, but it came in at 2.4%. The Dollar Index tested the 110.00 levels last week, but with the uncertainty surrounding Trump’s tariffs, it pulled back to the 108.00 levels.
Both the European Central Bank and the Central Bank of the Republic of Turkey are expected to continue with interest rate cuts. These rate cuts have led to a loosening of currency policies, with the USD/TRY exchange rate at 36.20 in the free market, and the Euro/USD exchange rate pulling back to 1.02.
On the U.S. front, we followed employment-related reports last week. Job Openings and Labor Turnover came in at 7 million, below the 8 million forecast due to a 1 million loss. Non-Farm Payrolls were expected to be 169K but came in at around 143K, while the Unemployment Rate was expected to be 4.1% but was around 4.00%. Although there was some deterioration in the employment market, the likelihood of FED rate cuts has been somewhat reinforced.
This week, especially in the U.S., Wednesday's critical inflation data is expected to be released. Annual inflation is expected to be 2.9%, while monthly inflation is expected to decline slightly from the previous month, at 0.3%. A decrease in inflation could strengthen the likelihood of FED interest rate cuts.
Particularly, the uncertainty surrounding decisions made by President Donald Trump, which could reignite inflation, is being priced into the markets, and gold continues to hit historic records. When Donald Trump imposed a 25% tariff on steel and aluminum imports to the U.S., there were price premiums of +$80 on COMEX Future contracts due to restrictions on gold trade within the tariffs. The uncertainty has also revived the domestic market in Turkey, and we have started seeing positive premiums in gold prices once again. Gold is now being sold with a premium of about +$50 compared to the London market. The markets are focused on both Trump's decisions and the U.S. inflation report.
According to CME FED Watch, the probability of a 0.25 basis point rate cut in June is priced at around 42%.
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