Gold prices fell 2.5% in European trading on Tuesday, deepening losses for the second consecutive session and recording the lowest level in two weeks, due to weaker safe-haven demand amid recent political developments, in addition to a stronger US dollar in the foreign exchange market.

Strong US labor market data reduced the likelihood that the Federal Reserve will cut US interest rates next March, as markets await more evidence about the policy path later this year.

Price Overview

•Gold prices today: Gold declined by 2.7% to $4,859.43, from the session opening level at $4,993.24, and recorded a high of $5,000.83.

•At Monday’s settlement, gold prices lost about 1.0%, marking the second loss in the past three sessions, within corrective and profit-taking moves from a two-week high at $5,119.21 per ounce.

Political Developments

US President Donald Trump said on Monday that he would participate “indirectly” in talks between Iran and the United States regarding Tehran’s nuclear program, scheduled to be held Tuesday in Geneva. Trump added that he believes Tehran wants to reach an agreement.

Representatives of Ukraine and Russia are also meeting in Geneva on Tuesday and Wednesday for a new round of US-sponsored peace talks, which the Kremlin said will likely focus on territorial issues.

US Dollar

The dollar index rose about 0.2% on Tuesday, extending gains for the second straight session and reflecting continued strength of the US currency against a basket of major and minor currencies.

As is known, a stronger US dollar makes dollar-denominated gold bullion less attractive to buyers holding other currencies.

The strong US labor market data released last week reduced the chances of a Federal Reserve rate cut in March.

US Interest Rates

•Chicago Fed President Austan Goolsbee said on Friday that interest rates may decline, but noted that inflation in the services sector remains elevated.

•According to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the March meeting stands at 90%, while pricing for a 25 basis point cut stands at 10%.

•To reprice these probabilities, investors are closely watching additional US economic data releases, along with the minutes of the Federal Reserve’s latest meeting.

Gold Outlook

Market strategist Ilya Spivak said gold prices are unlikely to rise significantly, as geopolitical risks do not appear to be escalating meaningfully.

Spivak added that the Federal Open Market Committee minutes, along with signals about the Federal Reserve’s direction, will be important indicators for gold prices.

SPDR Fund

Gold holdings at SPDR Gold Trust, the largest gold-backed ETF in the world, remained unchanged on Monday, with the total holding steady at 1,077.04 metric tons.

The British pound declined in European trading on Tuesday against a basket of global currencies, continuing to move in negative territory for a second straight day against the US dollar, as traders remain focused on buying the US currency after expectations for a Federal Reserve rate cut in March declined.

The pound is also pressured by strong expectations that the Bank of England will cut interest rates in March. To reprice these expectations, investors are awaiting key UK labor market data due later today.

Price Overview

• British pound exchange rate today: The pound fell against the dollar by 0.2% to $1.3604, from an opening level of $1.3633, and recorded a high of $1.3635.

• The pound lost 0.2% against the dollar on Monday, marking its fourth loss in the past five days, due to speculation around UK interest rates.

US dollar

The dollar index rose by more than 0.1% on Tuesday, extending gains for a second consecutive session, reflecting continued strength in the US currency against a basket of major and minor currencies.

Strong US labor market data released last week reduced the likelihood of a Federal Reserve interest rate cut in March.

According to the CME FedWatch tool: pricing for keeping US interest rates unchanged at the March meeting is currently around 90%, while pricing for a 25 basis point rate cut stands near 10%.

To reprice these expectations, investors are watching this week for the minutes of the Federal Reserve’s latest meeting, in addition to several important US economic releases.

UK interest rates

• Following the Bank of England meeting last week, traders increased their bets on resuming the monetary easing cycle and cutting interest rates.

• Market pricing for a 25 basis point Bank of England rate cut at the March meeting is currently above 60%.

UK labor market

To reprice the above probabilities, investors are awaiting key UK labor market data later today, including January jobless claims, along with the unemployment rate and average wages data for December.

Outlook for the British pound

We expect here at Economies.com: if UK labor market data come in less firm than markets expect, the probability of a Bank of England rate cut in March will rise, which would lead to further downside pressure on the British pound.

The Japanese yen rose in Asian trading on Tuesday against a basket of major and minor currencies, resuming gains that were briefly paused yesterday against the US dollar, and moving back close to a two-week high, amid optimism about the economic policies of Japanese Prime Minister Sanae Takaichi, which are not expected to rely on excessive fiscal stimulus.

With expectations fading for the Bank of Japan to raise interest rates at its March meeting, investors are awaiting further indicators and signals that could strengthen the case for monetary tightening at the April meeting, with particular focus on inflation, wages, and movements in the local currency.

Price Overview

• Japanese yen exchange rate today: The dollar fell against the yen by 0.35% to ¥152.99, from an opening level of ¥153.51, and recorded a high of ¥153.75.

• The yen ended Monday down by 0.6% against the dollar, marking its first daily loss in six days, within correction and profit-taking moves from a two-week high at ¥152.27.

• Aside from profit-taking sales, the yen weakened after data showed Japan’s economic growth in the final quarter of last year came in below expectations.

Takaichi’s policies

A meeting between Prime Minister Sanae Takaichi and Bank of Japan Governor Kazuo Ueda concluded with an implicit agreement balancing central bank independence with the new economic policies. Both sides stressed the importance of close coordination to achieve demand-driven sustainable growth while avoiding sharp volatility in the foreign exchange market.

Although Ueda maintained the bank’s right to adjust monetary policy based on incoming data, the tone of the meeting leaned toward patience, signaling to markets that the Bank of Japan may not rush to raise rates before confirming the effectiveness of the government’s fiscal stimulus plans, supporting the stability of the so-called “Takaichi trade” in the short term.

Takaichi presented details of her “smart stimulus” fiscal plan, explaining that it is based on disciplined calculations and is not aimed at driving uncontrolled inflation, but rather at strengthening economic growth. The presentation appeared aimed at easing Ueda’s concerns about public debt sustainability.

Japanese interest rates

• Market pricing for a 25 basis point rate hike by the Bank of Japan at the March meeting is currently below 10%.

• Market pricing for a 25 basis point rate hike at the April meeting is currently around 50%.

• To reprice these probabilities, investors are awaiting further data on inflation, unemployment, and wages in Japan.

Oil prices rose by about 1% in Monday trading, as investors assessed the implications of upcoming talks between the United States and Iran aimed at de-escalation, amid expectations of higher supply from the OPEC+ alliance.

Brent crude futures rose by $0.90, or 1.33%, to settle at $68.65 per barrel. US West Texas Intermediate crude climbed to $63.75 per barrel, up $0.86, or 1.37%, as of 2:14 pm Eastern Time (19:14 GMT). There was no official settlement price for the US contract on Monday due to the Presidents’ Day holiday.

Both benchmark crudes posted weekly losses last week, with Brent down about 0.5% and WTI losing 1%, after US President Donald Trump said Washington could reach an agreement with Tehran within the next month.

The United States and Iran are scheduled to hold a second round of talks in Geneva on Tuesday to discuss Iran’s nuclear program. Ahead of those talks, Iran’s foreign minister met on Monday with the head of the International Atomic Energy Agency, the UN body responsible for monitoring nuclear activities.

According to reports citing an Iranian diplomat, Tehran is seeking a nuclear deal with Washington that delivers economic gains for both sides, with discussions covering energy and mining investments as well as aircraft purchases.

On the other hand, US officials told Reuters that the United States is preparing for the possibility of a sustained military campaign if the talks fail, while Iran’s Revolutionary Guard warned that any strikes on Iranian territory could trigger retaliation against US military bases.

While geopolitical tensions are supporting prices, OPEC+ is acting as a counterweight, as the alliance is inclined at its March 1 meeting to resume production increases starting in April after a three-month pause.

Prices also found support from continued strength in China’s crude imports and some disruptions to oil exports, according to Giovanni Staunovo, oil analyst at UBS.

Shipping data and trader estimates showed that China’s imports of Russian oil are set to rise for a third straight month in February to a new record, after India reduced its purchases under US pressure.