Investors Lose Faith in Gold
Gold (XAU/USD) declined by 0.82% on Friday. The outcome of the US presidential election negatively affected the precious metal as investors shifted investments towards stocks and Bitcoin (BTC). The yellow metal has broken below the resistance level at $2,700 and now continues to decline.
Investors were waiting to exit safe-haven assets for some time. Market participants began investing in the stock market and BTC after the election results, believing Trump could improve the economic situation and reduce the risk of global conflicts. Additionally, corporate tax cuts proposed by Trump supported risk appetite and capital outflows from gold. Policies of the new President may lead to economic growth and increased inflation, which could prevent the Federal Reserve (Fed) from aggressively lowering interest rates. This development could pressure gold prices as the asset doesn't generate any income.
Gold saw its longest weekly decline in the past five months. The ongoing trade enthusiasm around Trump's victory continues to support the US dollar. Meanwhile, the Fed is planning to ease the monetary policy further, with market participants pricing in the chance of another interest rate reduction in December at approximately 65%.
This week, investors will watch for data on US Consumer Inflation on Wednesday, the Producer Price Index (PPI) on Thursday, and Retail Sales on Friday. In the near term, XAU/USD may decline towards the support level of $2,650, tested at the end of the previous trading week. According to analysts, the pair may break below the level and decline towards $2,600.
USD Rally Continues, Bringing the Euro Down
The euro (EUR/USD) lost 0.8% against the US Dollar (USD) on Friday as investors continued to evaluate the likely impact of Donald Trump's policies on the eurozone and US economies.
Although the Federal Reserve's (Fed) 25-basis-point (bps) rate cut pushed Treasury yields lower and weakened the greenback, investors decided to sell the rally in EUR/USD as the US election results are seen to impact the USD exchange rate more significantly. Analysts expect Trump's policy proposals—more trade tariffs, a clampdown on illegal immigration, lower taxes, and business deregulation—will boost US economic growth and inflation in the long term.
"We don't really know how much campaign rhetoric was, how much a negotiating position is, and how much of it is speaking principle. Part of the volatility we're seeing in the dollar and in interest rates is that the market is trying to figure it out", said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Meanwhile, the European Central Bank (ECB) looks set to remain on an easing path. ECB Governing Council member Robert Holzmann said on Sunday that a December interest rate cut is almost guaranteed.
"As things look at the moment, it is possible that there will be a cut in December. There is nothing at the moment that would argue against that", Holzmann said.
The market currently prices in an 80% probability that the ECB deposit rate will be 50 bps lower by the end of January 2025. At the same time, the market believes that the Fed will lower its base rate by just 25 bps over the same period. Thus, the fundamental pressure on EUR/USD will persist as investors' monetary policy expectations between the ECB and the Fed continue to diverge.
EUR/USD was relatively flat during the Asian and early European trading sessions. The macroeconomic calendar is relatively uneventful today. There are bank holidays in France and the US, so volatility may be lower than usual. EUR/USD is trading near a three-month low, and traders may buy the pair hoping for a short-term rebound. However, the long-term bearish trend is likely to persist.
Canadian Dollar Fluctuates Ahead of US CPI Data
USD/CAD rose on Friday due to a decline in oil prices and a new Canadian employment data release.
Canada added only 14,500 jobs in October, falling short of expectations. However, wages for permanent employees increased as the economy absorbed additional workers from the rapidly expanding labour force.
"Odds on a 50-basis-point rate cut at the bank's December meeting are holding just above coin-toss levels, and the rate differential between US and Canadian ten-year bond yields remains extremely wide relative to history, helping put sustained pressure on the Canadian dollar (CAD)," said Karl Schamotta, Chief Market Strategist at Corpay.
This supports the view that the Bank of Canada (BOC) will likely cut interest rates again next month. Investors believe there's a 60% chance that the regulator will cut the rates by more than 50 basis points (bps).
The US Dollar Index (DXY) has remained relatively stable in recent weeks, with investors uncertain about the next move. They await US inflation data on Wednesday, which could offer insights into the Federal Reserve's (Fed) plans. Traders are also closely monitoring remarks from Fed officials, including an upcoming speech from Fed Chair Jerome Powell on Thursday. Last week, the US Dollar saw significant volatility, strengthening due to concerns over rising inflation and debt levels following Trump's election. In response, the Fed cut interest rates by 25 bps but didn't provide clear guidance on future rate changes.
USD/CAD has been moving sideways during Asian and early European trading hours. Today is Remembrance Day, so analysts expect low volatility in this pair. The next major event is the US Consumer Price Index (CPI) report at 1:30 p.m. UTC on Wednesday. A higher-than-expected reading may support the pair, while softer data could trigger a downward correction.