Gold Grows on Geopolitical Conflicts and Possible US Rate Cut
Gold (XAU/USD) gained 1.26%, finishing yesterday's trading session slightly below the crucial $2,700 level, supported by expectations of loose monetary policies from major central banks and increased demand for safe-haven assets.
The rapid collapse of the Syrian government and the unrest in the region have led to a surge in demand for gold as investors seek to protect their investments. Israel's Prime Minister Netanyahu ordered the military to seize the demilitarised buffer zone between Israel and Syria over the weekend. Experts at TD Securities stated that the combination of geopolitical uncertainty and inflationary risks associated with the US President-elect Donald Trump administration's tariff policies could create an environment conducive to the growth of the gold market.
Also, expectations of the Federal Reserve (Fed) 25-basis-point rate cut on 18 December further support XAU/USD. Additionally, China has announced plans to loosen its economic policy, and the Chinese central bank resumed gold purchases following a six-month pause. Moreover, major central banks, including the European Central Bank, the Swiss National Bank, and the Bank of Canada, are expected to lower rates this week, increasing the appeal of a safe-haven metal.
XAU/USD was declining during Asian and early European trading hours today. It seems that traders prefer to take profit before the US CPI report data, which is coming out today at 1:30 p.m. UTC. A lower-than-expected reading will favor the precious metal, while higher numbers may trigger a downward correction in XAU/USD.
Expectations of the US CPI Report Pressure the Euro
The euro (EUR/USD) lost 0.25% against the US dollar (USD) on Tuesday as traders continued to reposition ahead of today's US inflation report. They feared a rise in the Consumer Price Index (CPI) may take the euro even lower.
Worse than expected China's trade data—particularly, a drop in imports—may have additionally contributed to EUR/USD decline as the eurozone economy is highly dependent on Chinese demand. Still, the main focus is on the upcoming US CPI report, which makes traders uneasy. ‘Obviously, the market's kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed or maybe a little bit of a repricing. I think the market is looking to see if CPI influences the decision on the December meeting, which right now is pretty much close to 100% priced, but not 100% priced’, said Brad Bechtel, global head of FX at Jefferies.
At the same time, traders are also pricing in potential surprises at the upcoming European Central Bank (ECB) policy meeting on Thursday. While the ECB is widely expected to cut the rates by 25 basis points (bps), investors will focus on the comments from ECB officials, which could provide clues about the central bank's future moves.
EUR/USD was falling during the Asian and early European trading sessions. Today, the US CPI report is due at 1:30 p.m. UTC. The report will show how the prices of goods and services purchased by consumers have changed over the past month. Traders will focus on the core inflation rate, which tracks price changes for a basket of goods, excluding food and fuel. The market expects a 0.3% rise in monthly core inflation and a 3.3% annual increase. If inflation is higher than expected, EUR/USD may drop slightly, possibly towards 1.05000. If the figures show inflation is slowing down, EUR/USD will likely rise sharply and may break above the 1.05600 level.
USD/CAD Moves Sideways Ahead of the BOC Rate Decision
USD/CAD gained 0.07% on Tuesday. The pair was fluctuating near its highs due to the increase in oil prices and anticipation of another significant interest rate reduction from the Bank of Canada (BOC) today.
Investors are 88% certain that the central bank will lower interest rates by 50 basis points towards 3.25%, following a similar decrease in October for the first time in 15 years. A steep decrease in interest rates is expected to negatively affect the Canadian dollar (CAD), according to TD Securities analysts. They noted that the position of the US dollar (USD) and short-term values are quite stretched, which may slightly weaken the strengthening currency. However, they maintain a bullish outlook for the US dollar at the beginning of 2025 and expect any dips to be brief and minor.
Speculators have significantly increased their short positions in the Canadian dollar. The latest data from 6 December show that the net short position rose towards 159,346 contracts, an increase from 154,002 contracts on 2 December, according to the latest data released by the US Commodity Futures Trading Commission. Although stimulus measures implemented by China support the price of oil—a key export good for Canada—the future direction of oil prices remains uncertain.
USD/CAD fluctuated within the 1.416001–1.42000 range during Asian and early European trading hours. Market participants prefer to wait until the US Consumer Price Index report at 1:30 p.m. UTC and the BOC interest rate decision at 2:45 p.m. UTC today before making any decisions.