Gold (XAU/USD) gained 0.31% and reached a four-week high on Thursday, supported by safe-haven demand amid investors' uncertainty about the economic and inflationary impact of US President-elect Donald Trump's policies.
"Safe-haven demand is modestly supporting gold, offsetting downside pressure coming from a stronger dollar and higher rates. Market uncertainty is likely to persist with the upcoming inauguration of Donald Trump as the next US president", UBS analyst Giovanni Staunovo said.
Donald Trump will take office on 20 January, and his proposed tariffs, if implemented, could ignite trade wars and exacerbate inflationary trends. This could create a favorable environment for gold, a safe-haven asset that performs well during economic uncertainty and rising prices.
At the same time, the Federal Reserve (Fed) is already considering risks from Trump's possible policies and seems poised to take a careful approach to further rate cuts. According to the last meeting minutes, Fed officials noted that ‘the effects of potential changes in trade and immigration policy suggested that the disinflationary process could take longer than previously anticipated’. If the Fed continues to maintain its current base rate within the 4.25 – 4.5% range for an extended period, a rise in XAU/USD may be slow and volatile.
XAU/USD was rising during the Asian and early European trading sessions. Today, the market focuses on the US nonfarm payroll (NFP) report due at 1:30 p.m. UTC. A Reuters survey showed that the US economy likely added 160,000 jobs in December. If the report reveals a smaller figure and shows a slower rise in average hourly earnings, the Fed may be less cautious about easing rates this year. Therefore, XAU/USD will may rally. Conversely, a larger-than-expected increase in NPF figures coupled with strong earning data may push XAU/USD lower, probably below $2,650.
Less Dovish Fed Policy Puts Downward Pressure on the Euro
On Thursday, the euro (EUR/USD) lost 0.19% against the US dollar (USD) as the greenback's value continued to rise on concerns over tariffs under the incoming Donald Trump administration.
Yesterday, a number of the Federal Reserve (Fed) officials laid out their vision on US monetary policy. Susan Collins, the President of the Boston Fed, said that significant uncertainty over the outlook calls for the central bank to move forward cautiously with future rate cuts. Meanwhile, Patrick Harker, Philadelphia Fed President, stated that he still expects rate cuts, but any imminent move isn't needed amid uncertainty over the economic outlook. In addition, Jeff Schmid, Kansas City Fed President, commented that rates are near the point where the economy needs ‘neither restriction nor support’.
It seems like the Fed is preparing to pursue a much less dovish monetary policy in 2025 compared to 2024. This outlook is exerting an upward pressure on the US Dollar Index (DXY), dragging other currencies down. At the same time, the economic situation in the Eurozone continues to deteriorate. Yesterday's data revealed that exports in Germany, the Eurozone's largest economy, fell by 3.5% in November.
EUR/USD was falling during the Asian and early European trading sessions. Today, all eyes will be on the US macroeconomic data: the nonfarm payroll (NFP) report at 1:30 p.m. UTC and the preliminary consumer sentiment report at 3:00 p.m. UTC. Stronger-than-expected figures may push EUR/USD towards new multi-month lows, below 1.02600. Conversely, weaker-than-expected numbers may offer euro bulls a temporary relief and drive EUR/USD above 1.03500.
{0|Bitcoin}}'s Dynamic Weakens Due to Economic Uncertainty
Bitcoin (BTC/USD) decreased by 2.62% as yields on US Treasury securities reached their highest levels in a year. This caused a decline in risk assets due to the uncertainty surrounding potential tariffs under the new administration.
January began with a strong start as stocks and digital assets grew significantly due to the so-called ‘Trump trades’ due to anticipation of a more favourable climate for digital assets and corporate financial statements.
However, this positive sentiment soon faded as US bond yields increased, causing the early New Year's rally to end abruptly and causing digital assets and stocks to lose some gains. Historically, there has been a negative correlation between the price of Bitcoin and US interest rates.
According to Eloisa Cadenas, chief innovation officer at Monetae Exchange, markets like Bitcoin thrive on liquidity to fuel their growth. However, increasing interest rates reduces global liquidity and makes traditional instruments such as bonds more attractive to investors. Bitcoin couldn't hold above $100,000 and decreased by approximately 6% in the past 30 days, dropping to a support level of $92,000, while other digital currencies declined even more substantially.
While rate cuts encourage investment in higher-risk assets, such as cryptocurrencies, the Federal Reserve's (Fed) cautious approach to the monetary policy has heightened market volatility. Despite three rate reductions in 2024, the Fed indicated that future easing will happen much slower than anticipated.
Thus, yields on US government debt have increased significantly. With the upcoming release of the US nonfarm payroll data and the decline in global interest rates, market volatility in digital assets increased. The political climate under the Donald Trump administration could be positive for the cryptocurrency industry. However, concerns about the budget deficit and potential trade disputes could hinder economic growth and lead to uncertainty for risk-averse investors.
BTC/USD has been bullish during Asian and early European trading hours, reaching the local resistance level at $94,000. Today, the market awaits the US nonfarm payroll report data at 1:30 p.m. UTC. Analysts forecast that 164,000 jobs were added in December. A higher-than-expected figure may trigger a further bearish correction in Bitcoin, while soft data may push BTC/USD higher.