Gold Moves Sideways Ahead of US Economic Reports
Gold (XAU/USD) decreased by 0.45% on Monday as the US dollar (USD) climbed on rising expectations the Federal Reserve (Fed) may not lower interest rates at the December meeting.
Gold declined as the US dollar strengthened overnight. This indicates range-bound behaviour as the market awaits more US economic data and guidance regarding the timing and size of the Fed interest rate cuts. Meanwhile, the Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred inflation measure, increased by 2.3% year-on-year in October, compared to 2.1% in the previous month. This rise and potential economic uncertainties arising from the incoming Donald Trump administration have led some analysts to believe that the Fed may delay cutting rates at its meeting on 18 December. The CME FedWatch tool indicates a 62% probability of a 25-basis-point rate reduction, lower than the 83% probability last month. The expectation of no rate cut has increased towards 38%, up from only 17%.
This morning, XAU/USD has been moving sideways with a range of $2,634–2,644. Market participants will be waiting for the JOLTS Job Openings reports today at 3:00 p.m. UTC. The release may add noticeable volatility to XAU/USD. Lower-than-expected data may support gold, while figures exceeding the forecast will put downward pressure on the precious metal.
Euro Falls as US Dollar Strengthens on Positive Economic Data
The euro (EUR/USD) lost 0.74% against the US dollar (USD) on Monday as the greenback strengthened again on the back of better-than-expected US macroeconomic data.
Yesterday, the Institute of Supply Management reported that US manufacturing activity continued to decline in November but at a slower pace than anticipated. At the same time, new orders rose for the first time in eight months as factories benefited from significantly lower input prices. Meanwhile, political turmoil in France, where the government faces a no-confidence vote over the budget bill, has additionally undermined the euro.
Typically, the US dollar suffers seasonal weakness in December as companies tend to buy foreign currencies. However, traders seem unwilling to sell the greenback this year as they expect Donald Trump's policies to keep the firm US dollar. Over the weekend, Trump threatened punitive tariffs unless BRICS member countries committed to the US dollar as the only reserve currency. ‘The remarks strengthen the view that Trump may not look to weaken the USD during his presidential term and will instead be relying on tariffs to tackle the US's large goods trade imbalance. We maintain the view that EUR/USD could drop to parity around the middle of next year. The timing may coincide with the introduction of new tariffs by Trump’, said Rabobank strategist Jane Foley in a note.
EUR/USD was falling slightly during the Asian and early European trading sessions. This week, investors are closely monitoring US employment data to assess the probability of a Federal Reserve interest rate reduction later this month, currently standing at 50% chance. JOLTS Job Openings data is due at 3:00 p.m. UTC today, and it may add noticeable volatility to all USD pairs. Lower-than-expected figures may temporarily pull EUR/USD towards 1.06000. Conversely, higher-than-expected results may push the pair towards 1.04000.
Australian Dollar Decline as the Chinese Yuan Weakens
The Australian dollar (AUD/USD) declined by 0.53% on Monday due to a sliding Chinese yuan (USD/CNY). Investors waited to see if Beijing would act to support the national currency, while mixed local data provided little lift.
The Australian dollar is often used as a substitute for the Chinese yuan, given that China is Australia's largest trading partner. The recent decline in the Chinese yuan suggests that China may be more willing to allow the currency to depreciate in the short term than previously anticipated. This could put more bearish pressure on the Australian dollar, bringing it to lows like in August. Sean Callow from ITC Markets has stated that this is possible, as the Commonwealth Bank of Australia has revised its forecast for next year, expecting the Australian dollar to continue declining, potentially testing the 0.60000 level.
The latest data from local sources indicate that net exports contributed only 0.1% to Australia's economic expansion in Q3. Meanwhile, government spending on defence and infrastructure boosted growth by 0.7%, likely driving the overall economic performance during this period. Meanwhile, the Reserve Bank of Australia (RBA) Governor, Michele Bullock, has reiterated that core inflation in Australia remains ‘too high’ to justify interest rate reductions in the near term. She stressed that the current policy stance will remain unchanged until there is greater confidence in the future inflation outlook and further progress has been made towards the inflation target.
AUD/USD has been trading sideways during Asian and early European trading hours. Today, the US JOLTS Job Openings report will be released at 3:00 p.m. UTC. Stronger-than-expected data may put extra bearish pressure on the pair. Additionally, the Australian Gross Domestic Product (GDP) Growth Rate for Q3 comes out on Wednesday at 12:30 a.m. UTC. Higher-than-expected results will support AUD/USD, while weak data may put downward pressure on the pair.