Mixed Economic Data and Potential Easing in the Middle East Weigh on Gold
Due to mixed economic data, Gold (XAU/USD) dropped from $2,720 towards $2,680 and finished the day with a 1.38% decline.
The US Producer Price Index (PPI) figures increased more than anticipated in November, rising by 0.4%, compared to the expected 0.2%. This development has raised concerns that inflation may persistently exceed the Federal Reserve's (Fed) 2% target into the coming year. However, the initial jobless claims unexpectedly soared towards a nearly two-month high, significantly exceeding expectations. This surge underscores the risks of a weakening labour market. The markets still anticipate a 25-basis-point increase in interest rates by the Fed next week, and they are factoring in subsequent rate cuts for the following year. However, there is still uncertainty about the extent of these reductions.
Also, the possibility of ease in tensions between Hamas and Israel in the Middle East put a bearish pressure on the price of precious metals in the near future. Arab mediators say that Hamas has agreed to two key conditions from Israel for a ceasefire in Gaza, which has given people hope that an agreement can be reached soon. This could lead to the release of some prisoners, and it would be good news for the market.
XAU/USD has been moving sideways during Asian and early European trading hours. The market is still assessing Thursday's mixed US economic data. On Friday, no significant news that could add volatility to the market is expected.
Euro Falls for the Fifth Consecutive Day
The euro (EUR/USD) lost 0.26% against the US Dollar on Thursday after a stronger-than-expected US inflation report pulled the greenback higher.
A Labor Department report released on Thursday revealed that producer prices climbed by 0.4% month-over-month in November, exceeding the projected 0.2% increase. While the report didn't affect investors' expectations for a 25-basis-point (bps) rate cut by the Federal Reserve (Fed) next week, it sparked concerns about underlying inflationary pressures. This could potentially complicate the Fed's decision-making process and lead towards a more cautious approach to future rate cuts. A less dovish Fed would be supportive of the US dollar.
"‘Although the Fed is seen cutting its benchmark by 25 bps, moves in the last 24 hours—from the Bank of Canada, Swiss National Bank, and European Central Bank—have ensured that cross-currency rate differentials will remain wide relative to the US, maintaining the dollar's position in relative terms", said Karl Schamotta, chief market strategist at Corpay.
The European Central Bank (ECB) implemented a 25-bps rate cut on Thursday. The central bank also indicated that additional easing measures could be forthcoming as inflation approaches its target and economic conditions remain subdued. The markets currently price in a 95% chance that the ECB will deliver another 25-bps cut on 30 January 2025. The chances of a similar reduction by the Fed are less than 75%.
EUR/USD was falling slightly during the Asian and early European trading session. Today's macroeconomic calendar doesn't feature any major events, so bears may use this opportunity to take profit and close their short positions on EUR/USD. This may lead to a short-term rebound in the pair. However, the fundamental pressure on the pair remains bearish.
Bitcoin Retreated from the All-Time High
Bitcoin (BTC/USD) moved primarily sideways during the last trading session, losing 1.16%. However, some news developments could potentially support the asset in the near term.
According to a Bloomberg article, Brian Quintenz is the top candidate to take over as head of the Commodity Futures Trading Commission (CFTC) under President-elect Donald Trump's administration. Quintenz currently runs the policy department at Andreessen Horowitz, the crypto division A16Z, and has experience overseeing important policy initiatives at the CFTC from 2017 to 2021. His appointment could shift the power balance in a longstanding debate about the regulation of cryptocurrencies, which are currently under the purview of both the CFTC and the Securities and Exchange Commission (SEC). Quintenz fought to include digital asset derivatives and events contracts in the agency's system. He emphasised the importance of innovation while keeping the market stable.
Vancouver has approved a plan to integrate Bitcoin into its financial system, including creating a reserve and allowing Bitcoin payments. Mayor Ken Sim proposed this idea before an 11 December meeting, saying it could help protect against inflation and currency devaluation. Six council members supported the plan, two were against it, and three were absent from voting. Before the vote, Sim said he submitted the idea because he wants to be prepared for future challenges and secure Vancouver's future for the next 100 years.
"We've got affordability issues, and I really think Bitcoin could be the answer to our financial problems", Sim said.
He explained that he wanted to bring the idea to the council because he found out that property prices in the city have risen by 381% since 1995, while gold hadn't changed much. He also pointed out that the city's fixed-income securities, worth $3.1 billion, were down by $185 million in market value.
"Something's not right here. Our money's losing value, and we're losing our buying power", he worried.
BTC/USD continues to trade sideways in a range of 99,200.00–100,400.00 during Asian and early European trading hours. No significant data that can affect the asset dynamics is expected today.