Gold Dropped More Than 3% After Trump's Victory
On Wednesday, gold corrected downwards sharply following the announcement of Donald Trump's victory in the 2024 US presidential election. (XAU/USD) declined by more than 3%, and the price returned to the mid-October level of $2,650.
Investors now anticipate that Trump's policies on tax cuts and tariffs will significantly impact inflation growth, affecting the stock market and the US Dollar. These expectations have led to a decrease in gold prices. The market has already factored in these negative developments for gold based on Donald Trump's economic policies, which he presented as a part of his election campaign.
The Federal Reserve will announce its interest rate decision on Thursday at 7:00 p.m. UTC, followed by a speech from Chairman Jerome Powell. Markets are anticipating a 25-basis-point interest rate reduction. However, the upcoming press conference is more important as it will provide hints on future actions of the US central bank. Jerome Powell will likely recognize the recent challenges in the labor market and the efforts made to combat inflation. Still, Trump's return to the White House could lead the Fed to consider slowing down its easing measures as Trump's economic policies are considered to be highly inflationary.
In the near future, gold may decline and test the support level at $2,625. The XAU/USD trend will depend on today's Fed interest rate decision, the statement, and Powell's comments at the press conference. Thus, traders may expect increased volatility today.
Euro Rebounds After Dropping to a Five-Month Low
The euro (EUR/USD) plunged by 1.82% against the US Dollar on Wednesday after Republican Donald Trump won the US presidential election.
The market largely assumes that Trump's policies on immigration, tax, and trade will speed up US economic growth and lead to higher inflation, likely preventing the Fed from cutting interest rates in 2025. As a result, the market has already started to price in a tighter US monetary policy than the eurozone's. Traders are factoring in a 67% chance the Fed will also cut in December, down from 77% on Tuesday, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
Furthermore, there is a risk that the Trump administration may impose new tariffs on certain European goods. This development will dent the eurozone's exports and slow the economy, potentially forcing the European Central Bank (ECB) to cut borrowing costs more aggressively. At the same time, Trump has stated a preference for a weak US currency.
"Both this year, but also during his previous stay at the White House, he had essentially challenged the longstanding strong dollar mantra because he prefers a weaker currency to help with exports and American economic activity," said Nikos Tzabouras, senior market specialist at trading platform Tradu.
This apparent divergence between market beliefs and Trump's goals is a major complicating factor for the greenback's long-term outlook.
EUR/USD was rising during the Asian and early European trading sessions. A technical rebound is expected after the pair dropped to a five-month low on Wednesday, but gains will likely be capped by the strong resistance at 1.07600. Today, the main event is the Fed's interest rate decision, due at 7:00 p.m. UTC. Traders expect the US central bank to cut its base interest rate by 25 basis points (bps).
New details revealed in the FOMC Statement and at the press conference may give insights into the future US monetary policy. If the Fed downgrades its economic forecast and Fed Chair Jerome Powell hints that more rate cuts are coming, EUR/USD will rise sharply. If the FOMC Statement includes better economic assessments and Jerome Powell makes hawkish statements or sounds less dovish than the market expects, EUR/USD may drop and set a new low. In the wake of the US presidential election, the risks of a more hawkish outlook in the FOMC Statement have increased, so traders should be particularly cautious today.
British Pounds Decline Slows Ahead of Two Interest Rate Decisions
The British pound (GBP/USD) declined by 1.24% yesterday due to the US election results. GBP faces uncertainty ahead of today's Bank of England (BOE) and Federal Fed rate decisions that could add downward pressure to GBP/USD.
As markets recovered from initial volatility and the US Dollar buying spree slowed during the US trading session, market participants turned their attention to upcoming central banks' meetings. The two central banks—the BOE and the Fed—are expected to announce rate cuts in the upcoming meetings. The BOE will likely cut interest rates for the second time since 2020. Still, the market will focus on whether this action signals the future direction of monetary policy after the recent inflationary budget announcement by the government.
On Thursday, the US Dollar was hovering just beneath its four-month high as the market absorbed the news of Donald Trump's victory in the US presidential race. Investors also closely monitor the actions of central banks, with the Fed expected to announce a reduction in interest rates later today. Market participants were speculating whether the Fed would maintain its steady pace of rate cuts or slow it down. Trump's victory has raised questions about the central bank's plans, with some suggesting that the regulator may slow its easing cycle. Based on the CME FedWatch Tool, there is a 67% probability that the Fed will reduce rates again next month, down from yesterday's 77%.
GBP/USD has been recovering during Asian and early European trading hours. On Thursday, the BOE rate decision will be announced at 12:00 p.m. UTC, and the Fed interest rate decision will come out at 7:00 p.m. UTC. These two events will add volatility to the GBP/USD.