Ceasefire and Rate Cut Expectations Weigh Down on Gold
Gold ( XAU/USD ) rose by a mere 0.12% yesterday, reaching near the upper border of the $2,600–2,650 range and falling after testing it.
The XAU/USD decline was largely driven by news of a ceasefire between Israel and Hezbollah, reducing demand for safe haven assets. However, the overall decline wasn't as deep as it could be because the US dollar retreated from recent highs, and traders still hoped for an interest rate reduction in December. Yesterday, data on the Personal Consumption Expenditures (PCE) Price Index data, a preferred Federal Reserve's (Fed) measure of inflation, showed growth exceeding the central bank's 2% annual target, as expected. US Gross Domestic Product (GDP) data for Q3 also showed steady growth.
The lack of success in returning inflation to the Federal Reserve's 2% target and the potential for higher tariffs on imported goods could limit the scope for interest rate reductions next year. Nevertheless, many still anticipate the Fed will lower interest rates for a third time this year in December. Officials are divided on how much more rate cuts may be needed. ‘We continue to expect the FOMC to cut the Funds rate by 25 basis points at its December meeting’, said economist Kristina Clifton at the Commonwealth Bank of Australia. According to LSEG data, traders price in a 65% chance of a rate cut next month and expect a total reduction of 75 basis points by the end of 2025.
During the Asian trading session, XAU/USD continued to decline. Today, the US celebrates Thanksgiving, and exchanges are closed. Thus, volatility in the market is expected to be low, and XAU/USD will likely move in the already established trend. The pair is unlikely to break out of the $2,600–2,650 range.
Euro Climbs as Market Digests US Data, but the Rise Remains Limited
The euro ( EUR/USD ) gained 0.74% against the US dollar (USD) on Wednesday despite positive US economic data.
After hitting a two-year low on 22 November, EUR/USD has been attempting to recover. However, the pair has been unable to break above the critical resistance level of 1.05720–1.06100. Investors now lack strong fundamental reasons to buy the euro. The most recent US macro data— Gross Domestic Product (GDP), Personal Consumption Expenditures (PCE) Price Index, and Pending Home Sales data—underscored US economic resilience, supporting the US dollar (USD). In addition, investors continue to price in the possibility of a tariff war that President-elect Donald Trump may potentially start once he assumes office on 20 January.
Meanwhile, the latest eurozone statistics once again painted a bleak picture of the region's economic health. German Gfk Consumer Climate Indicator fell to a seven-month low, suggesting that inflation may continue to fall, allowing the European Central Bank (ECB) to cut the rates further. The market currently prices in more than a 50% chance that the eurozone base rate will drop towards just 2.5% by February 2025. At the same time, there is almost a 60% chance that the Federal Reserve (Fed) would maintain its rates in the range of 4.25–4.5% over the same period.
EUR/USD was falling during the Asian and early European trading sessions. Today, Germany will release its preliminary inflation figures. States' data will be released at 9:00 a.m. UTC, with harmonised federal data published at 1:00 p.m. UTC. If the report indicates a continuing slowdown in eurozone inflation, EUR/USD may drop towards 1.05000 again. The overall Forex market volatility may be below average due to the US Thanksgiving holiday.
Canadian Dollar Declines Ahead of Key GDP Data
The Canadian dollar ( USD/CAD ) gained 0.17% against the US dollar (USD) on Wednesday, defying recent weakness, as investors grew optimistic about avoiding a trade war with the US
Investors speculate that there might be a negotiated solution to US trade threats and expect the upcoming Canadian Gross Domestic Product (GDP) data to come out stronger than expected. The optimism allowed CAD to recover from its 4.5-year low against the greenback. On Tuesday, the currency touched its lowest intraday level since April 2020 at 1.4177 after US President-elect Donald Trump said he would impose a 25% tariff on imports from Canada and Mexico. ‘Targeting both countries suggests the threat was likely a strategic opening move in renegotiating the existing free trade agreement between the three nations. The price action following Trump's remarks supports this view, with an initial knee-jerk sell-off giving way to a recovery as investors anticipate a negotiated outcome’, said Tony Valente, a senior FX dealer at AscendantFX. Still, the potential imposition of US tariffs on Canadian crude oil imports could force its producers to lower their prices and redirect their supply to Asian markets.
Meanwhile, Canada's upcoming Q3 GDP data, scheduled for release on Friday, could provide insights into the Bank of Canada's (BOC) future monetary policy decisions. Economists predict GDP will expand at an annualised rate of 1%, but traders hope to see a higher figure. Coupled with recent inflationary pressures, this could lead to a reassessment of the likelihood of another substantial interest rate cut in the coming month.
USD/CAD was essentially unchanged during the Asian and early European trading sessions. Traders will likely refrain from initiating big positions in USD/CAD ahead of tomorrow's GDP report. Furthermore, volatility in the Forex market can be low due to the Thanksgiving holiday in the US