Gold Fell by More Than 3%
On Monday, gold (XAU/USD) dropped by 3.33% and reached around $2,600, losing all the gains from the previous three days.
News that Israel and the Hezbollah militant group were close to a ceasefire agreement and the appointment of Scott Besset as US Treasury Secretary caused investors to shift from Gold towards riskier assets. Geopolitical uncertainty easing exerted significant pressure on the precious metal. Nevertheless, there is still no clear information regarding when the agreement will be finalised, and Israeli military activity in northern Gaza has increased in recent weeks, with continued strikes on Lebanon.
The recent increase in demand for gold can be attributed to the tariff policy announced by the incoming US President Donald Trump. His policies include a potential 25% increase in tariffs on goods from Mexico and Canada and an additional 10% on Chinese imports. Despite this, the market continues to anticipate a more lenient stance from the Federal Reserve, a potential increase in Treasury bond yields, and a resumption of the US Dollarpurchases, which could limit demand for the yellow metal. Now, investors are closely monitoring the publication of the FOMC meeting minutes to get insights into the future monetary policy.
During the Asian trading session, XAU/USD continued to decline. Gold will likely pause its decline after yesterday's significant drop. Still, FOMC meeting minutes, due at 7:00 p.m. UTC, may add volatility to the market. Analysts anticipate a range-bound movement for the day, with XAU/USD potentially testing the support level at $2,600 before determining its next movements.
Euro Rebounded, but Fundamental Weaknesses Linger
The euro (EUR/USD) gained 0.74% against the US dollar on Monday as traders closed their short positions, allowing EUR/USD to recover after falling to a multi-year low.
Monday's rise in EUR/USD was mostly due to a technical rebound, as the support 1.04500 level appears to be rather strong and a lot of buying interest is concentrated there. Despite the recent stabilization in the exchange rate, euro traders still lack substantial incentives to invest in the currency. Fundamental economic indicators, geopolitical risks, and central banks' policies continue to weigh on the euro's appeal.
On Monday, Donald Trump vowed to impose new tariffs against Mexico and Canada. Although he didn't mention the eurozone, it still shows Trump's resolve to change the US policy radically. ‘It's almost as if Trump wants to remind markets, who is in control, after nominating Scott Bessent as Treasury Secretary—a man markets expected to cool Trump's potency’, said an analyst at City Index.
Meanwhile, the eurozone economy continues to struggle with sluggish growth and corporate pessimism. On Monday, the Ifo Institute reported that the German Business Climate Index decreased towards 85.7 in November from 86.5 in the previous month. The decline was deeper than expected and affected all sectors of the economy.
EUR/USD touched 1.04250 during the Asian trading session but then recovered and continued to move above the important 1.04500 level. Several US macro reports may trigger substantial volatility in all USD pairs today. CB Consumer Confidence Index, New Home Sales, and Richmond Manufacturing Index will be released simultaneously at 3:00 p.m. UTC. Better-than-expected results may allow bears to finally break below that 1.04500 level and take EUR/USD lower towards 1.03300. If reports indicate that the US economy is slowing down, EUR/USD may continue to rebound, but the break above 1.06000 is still unlikely. In addition, investors will study the FOMC Minutes from the last Federal Reserve meeting, due at 7:00 p.m. UTC. If they spot a less dovish or a more hawkish tone, signalling a cautious approach to future rate cuts, EUR/USD will continue to weaken.
The Tariffs on China Dropped Australian Dollar
The Australian dollar (AUD/USD) has been trading sideways for the last five days. Today, the pair dropped under the significant support level of 0.65000 as US President-elect Donald Trump threatened to impose an additional 10% tariff on China.
Australia's economy is heavily reliant on exports to China, so it's particularly vulnerable to trade tensions between the US and China. The Australian dollar is also often seen as a proxy for the Chinese yuan, so events in China can greatly impact Australian stocks. This Wednesday, investors will be watching out for Australian inflation data, as it will give a clue about the Reserve Bank of Australia's (RBA) future monetary policy. In their last meeting, the RBA said they'd keep interest rates high until inflation was closer to the target. However, they also stated they would adjust the policy based on economic data.
AUD/USD has retraced towards 0.65000 during Asian and early European trading hours level after deep drop, devoted to tariffs on China. Today the market will be waiting for the US CB Consumer Confidence, coming out at 3:00 p.m. UTC, and FOMC minutes at 7:00 p.m., which could provide further insight into the Federal Reserve's monetary policy path.