Gold Grows After a Long Decline
Gold (XAU/USD) continues its correction, although the decline has slowed near the support level of around $2,550. On Friday, volatility was low, and XAU/USD lost only 0.07%.
On Monday, gold rose sharply by over 1% as the US dollar (USD) growth stalled. Investors are awaiting Federal Reserve (Fed) officials' comments on future interest rate policies to outline the USD trend. This rise follows a sharp weekly decline—the steepest in three years—after Donald Trump's US election victory. A stronger USD and expectations of potential Trump policies, such as lower interest rates, higher inflation, and reduced taxes and tariffs, drove the XAU/USD decline.
This week, investors will pay attention to the S&P Global Composite Flash Purchasing Managers' Index (PMI) data from the US on Friday. Also, Fed members will deliver their speeches and may provide insights into future monetary policy decisions. These developments are expected to significantly influence the direction of gold prices in the short term.
XAU/USD found support at $2,560 and may rise towards $2,620 at the start of the week. If prices manage to hold above the $2,600 resistance level, the downward correction may be over.
US Dollar Strength Trims Euro Gains
The euro (EUR/USD) gained 0.1% against the US dollar (USD) during a very volatile trading session on Friday.
Initially, EUR/USD rallied towards 1.06000 but failed to break above it, retraced, and lost most of the previous gains. A slightly higher-than-expected increase in US retail sales in October, reported by the Commerce Department on Friday, may have additionally boosted the greenback. Furthermore, the market is starting to reassess expectations of future interest rate cuts by the Fed, considering that Donald Trump's policies could be inflationary. Indeed, Susan Collins, the President of the Boston Fed, said that rate cuts could be paused in December, depending on upcoming data on jobs and inflation. According to the CME FedWatch Tool, the probability of a rate reduction in December has dropped to around 65%.
A slower pace of rate cuts from the Fed is a strong bearish factor for the EUR/USD, especially given that the European Central Bank (ECB) is projected to remain dovish as the eurozone economy struggles. The latest inflation figures out of France were in line with the market expectations and below the ECB target, potentially opening the door to more rate cuts. The latest interest rate swaps market data implies a 70% probability that the ECB base rate will decline towards just 2.25% by mid-March 2025. On the contrary, there is currently a 40% probability that the Fed's rate will remain above 4% by that time.
EUR/USD was relatively unchanged during the Asian and early European trading sessions. Today's macroeconomic calendar doesn't feature important data releases, but central bankers' speeches may still trigger some volatility. Traders should keep an eye on FOMC member Austan Goolsbee's speech at 3:00 p.m. UTC and the EBC President Christine Lagarde's remarks due at 6:30 p.m. UTC.
USD/JPY Slows on Japanese Officials' Remarks
USD/JPY fell by 1.25% on Friday after Japanese Finance Minister Katsunobu Kato warned of potential intervention if the Japanese yen (JPY) weakens excessively.
Bank of Japan (BOJ) Governor Kazuo Ueda reaffirmed that interest rates will continue to rise gradually in line with economic progress based on BOJ projections. However, he didn't provide any details about a possible rate increase in December. Ueda emphasised the need for the BOJ to carefully monitor various risks, including those tied to the US economy, to make informed interest rate decisions. In a press conference, he also stated that the BOJ won't wait for all risks to become fully clear before making decisions, as delays could lead to more aggressive rate hikes in the future. This has led a market to price in a 54% chance of a 0.25% rate hike at the BOJ's next meeting on 19 December, up slightly from previous forecasts. Ueda's comments came after the US presidential election results, raising investors' speculation regarding his potential approach to monetary policy.
On Monday, USD/JPY slightly rebounded after Ueda hinted at the possibility of further tightening but didn't specify when it could happen. Thus, the market is uncertain about whether rate hikes might occur next month or later. The Japanese Inflation Rate report will be released on Thursday at 11:30 p.m. UTC and is expected to influence BOJ's future monetary policy.