Important calendar events
The dollar exhibited high volatility after the Fed rate decision on Wednesday, reaching its highest level in more than two years. The dollar index surged from 106.9 to 108.5 on Thursday, but pared some of the week’s gains on Friday, settling at 107.8 at the end of the week. US treasury yields also strengthened, with the US 10-year bond yield rising from 4.40 to 4.52%.
The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.25% to 4.50%. However, a 25-basis point rate cut had been fully priced in, and market participants focused mostly on the Fed’s forward guidance.
In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that future rate cuts will be slower, as inflation in the US remains above the central bank’s 2% target.
The release of the Fed’s Summary of Economic Projections, or dot plot, after the policy meeting, also attracted considerable market attention. This is a chart that is updated quarterly and records each Fed official's projection for the central bank's interest rate. The Fed’s updated dot plot last week was more hawkish than anticipated, bringing down expectations of future rate cuts. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September. In quantitative terms, policymakers expect to deliver a total of 50 basis points of rate cuts in 2025, which will bring the central bank’s interest rate to 3.9% by the end of 2025, which is significantly higher than the 3.4% estimated in September. In addition, the Fed’s projections indicate that a more normalized monetary policy with a 3.4% interest rate will be reached in 2026, indicating a policy shift to a more hawkish stance.
On the data front, the Core PCE Price Index on Friday revealed that disinflation in the US is progressing. This is the Federal Reserve’s inflation gauge and is likely to affect market expectations of future rate cuts. The Personal Consumption Expenditure (PCE) index rose by just 0.1% in November against 0.2% anticipated, Bringing the annual rate at 2.4%, below expectations of 2.5%.
US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. US Headline inflation rose to 2.7% year-on-year in November from 2.6% in October. Monthly inflation rose by 0.3% in November, the same as in October, which was in line with expectations. Core CPI, which excludes food and energy, rose by 0.3% in November.
US Retail Sales released on Tuesday exceeded expectations, boosting the dollar. Retail sales rose by 0.7% in November, beating market expectations of a 0.5% rise and following a 0.4% increase in October. Core Retail Sales, which do not include the sales of automobiles, increased by 0.2% in November, falling short of market expectations of 0.4%. Total sales for September through November 2024 went up by 2.9% from the same period a year ago, while the September to October 2024 change was revised upward from 0.4% to 0.5%.
Final GDP data for the third quarter of the year showed that the US economy expanded by 3.1% in the third quarter of 2024, up from 2.8% estimated earlier. In addition, the US economy expanded by 3.0% in the second quarter of the year and by 1.4% in the first quarter of the year.
EUR/USD was driven by the dollar’s movement last week, remaining steady early in the week, then plummeting after the Fed rate decision on Wednesday. The currency rate plunged from 1.052 to 1.034 but pared some losses at the end of the week, rising back to 1.043. If the EUR/USD pair declines, it may find support at 1.034, while resistance may be encountered near 1.063.
The Euro is under pressure as a climate of political instability has prevailed in the Eurozone. Political instability in Germany, which is the Eurozone’s leading economy, is weighing the Euro down. The announcement on Monday of snap elections in February has created a climate of uncertainty. German Chancellor Scholz lost the vote of confidence on Monday, setting Germany on course for an early election on February 23rd.
In addition, France’s Prime Minister, Michel Barnier resigned after he lost a vote of no-confidence and the French government collapsed. French President Emmanuel Macron has selected the leader of the Democratic Movement Michel Barnier to replace Michel Barnier as France’s prime minister.
The ECB lowered its benchmark interest rate by 25 basis points in December, bringing its main refinancing rate to 3.15%. This was the fourth rate cut for the ECB this year, which started its easing cycle in June and has already lowered interest rates by a total of 100 bps. More importantly, ECB President Christine Lagarde hinted at further easing in the coming months as Eurozone inflation nears the central bank’s target while the economy remains weak.
Lagarde’s press conference after the policy meeting was dovish, raising expectations of further rate cuts. Lagarde admitted that several policymakers advocated for a sharper rate cut of 50bps at December’s meeting and market expectations of future ECB rate cuts rose after Lagarde’s speech. The central bank is currently expected to cut interest rates up to five more times next year, to a total of 125bps, until neutral policy settings are reached.
On the data front, the German IFO Business Climate index released on Wednesday, showed that German business sentiment is declining, putting pressure on the Euro for December. The IFO institute's business climate index dropped to 84.7 in December, down from 85.6 in November and against expectations of an 85.5 print.
Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates in December. Eurozone inflation rose to 2.3% year-on-year in November from 2.0% in October, which was in line with expectations. Core CPI, which excludes food and energy, remained steady at 2.7% in November, against expectations of a 2.8% print.
Flash GDP data showed that the Eurozone economy expanded by 0.4% in Q3 of 2024, rising from 0.2% in Q2. The Eurozone economy also expanded by 0.3% in the first quarter of 2024. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
The Sterling gained strength early last week but retreated sharply against the dollar after the Fed rate decision on Wednesday. GBP/USD plummeted from 1.271 to 1.257 on Wednesday and dropped further to 1.247 after the BOE policy meeting on Thursday, but rallied on Friday, rising to 1.258. If the GBP/USD rate goes up, it may encounter resistance at 1.281, while support may be found near 1.247.
The BOE kept interest rates steady at its policy meeting last week, having cut interest rates twice already this year. The BOE was widely expected to refrain from cutting interest rates further, as price pressures in the UK remain high.
The vote split at the BOE policy meeting on Thursday, however, came as a surprise. MPC members voted 6-3 to keep rates on hold, with three members in favor of cutting interest rates. Last week’s MPC voting shows a shift to a hawkish direction, as policymakers had voted with a strong majority of 8-1 to cut rates to 4.75% in October. Nevertheless, markets were anticipating a 7-2 vote in favor of keeping interest rates steady, putting pressure on the Sterling.
Bank of England Governor Andrew Bailey reiterated his former message that the central bank needs to adopt a gradual approach to future rate cuts. Bailey also stressed that the BOE’s policy outlook will remain data-driven and refused to commit to a timeline or magnitude of future rate cuts.
On the data front, CPI data released on Wednesday showed an uptick in British inflation in November. Headline inflation in the UK rose to 2.6% year-on-year in November from 2.3% in October. Core annual inflation, which excludes food and energy, climbed to 3.5% in November from 3.2% in October against 3.6% anticipated.
UK labor data released on Tuesday were optimistic, boosting the Sterling. Average Weekly Earnings rose by 5.2% for the three months ending in October, from 4.4% in September against expectations of a 4.4% print. Unemployment Rate remained unchanged at 4.3% in October, which was in line with market expectations.
GDP data showed that the British economy contracted by 0.1% in October, falling short of expectations of 0.1% expansion and following a 0.1% contraction in September.
USD/JPY shot upward after the Fed policy meeting last week, surging from 153.8 to 157.9, its highest level since June. The currency rate pared some of the week’s gains on Friday, ending the week at 156.5. If the USD/JPY pair declines, it may find support at 148.6. If the pair climbs, it may find resistance at 157.9.
The BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25% at its policy meeting last week. BOJ policymakers decided to keep rates unchanged in an 8-1 vote split, as one member voted in favor of a 25-bps hike.
BOJ Governor Kazuo Ueda stated that Japan’s economic and inflationary outlook remains uncertain and stressed that the central bank’s policy will remain data-driven. The BOJ is likely to hold off raising interest rates in the coming months, putting pressure on the Yen. At the same time, the Fed’s rate outlook has become more hawkish than previously anticipated, boosting the USD/JPY rate.
USD/JPY rose above the 155.0 level last week, which is considered a line in the sand for an intervention in support of the Yen. Japan’s Finance Minister Katsunobu Kato delivered a verbal intervention on Friday, warning traders that authorities will take appropriate action if there are excessive moves in currency markets.
Inflation in Japan is on the rise, raising the odds of a BOJ rate hike in December and providing support for the Yen. Tokyo Core CPI came in at 2.3% annually in November, beating expectations of 2.0% and far exceeding October’s print of 1.8%. In addition, Headline inflation in Japan rose by 2.3% year-on-year in October against expectations of a 2.2% print. BOJ Core CPI, however, dropped to 1.5% year-on-year in October from 1.7% in September against expectations of 1.8%.
Final GDP data for the third quarter of the year showed that Japan’s economy expanded by 0.3%, exceeding initial estimates of 0.2%, but down from 0.7% in the second quarter. The Japanese economy is expanding, after shrinking by 0.5% in the first quarter of the year.
Gold prices plummeted from $2,640 to $2,580 per ounce on Wednesday, as the dollar gained strength but rallied towards the end of the week, rising to $2,620 per ounce. If gold prices rise, they may encounter resistance at $2,726 per ounce, while if gold prices decline, support may be encountered near $2,537 per ounce.
Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.25% to 4.50%. However, a 25-basis point rate cut had been fully priced in, and market participants focused mostly on the Fed’s forward guidance.
In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower.
Indications that the Fed will follow a more hawkish approach than previously anticipated put pressure on gold prices last week. The Fed’s updated dot plot was more hawkish than anticipated, bringing down expectations of future rate cuts. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar exhibited high volatility after the Fed rate decision last week, reaching its highest level in more than two years. The dollar index surged from 106.9 to 108.5 on Thursday, but pared some of the week’s gains on Friday, settling at 107.8 at the end of the week. US treasury yields also strengthened, with the US 10-year bond yield rising from 4.40 to 4.52%.
Geopolitical tensions continue to rise, boosting demand for safe-haven assets. The civil war in Syria has been rekindled, further destabilizing the region. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting gold prices. In addition, tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine.
Oil prices slipped last week and WTI price dropped from $71.1 to $69.8 per barrel. If oil prices retreat, they may encounter support near $66.8 per barrel, while resistance may be found near $71.7 per barrel.
Disappointing Chinese Retail Sales data for November pushed oil prices down last week. Declining consumer spending in China, which is the world's largest oil importer, is lowering the oil demand outlook.
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.25% to 4.50%. However, a 25-basis point rate cut had been fully priced in, and market participants focused mostly on the Fed’s forward guidance.
In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a rather hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower.
Indications that the Fed will follow a more hawkish approach than previously anticipated put pressure on oil prices last week. The Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
OPEC cut oil demand forecasts for 2024 and 2025 for the fifth month in a row in December. OPEC has cut 2024 demand growth by 210K barrels a day to 1.6 million barrels a day. The organization estimates that oil demand will drop by an additional 90K barrels per day into 2025.
OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices.
Meanwhile, concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. The civil war in Syria has been rekindled, further destabilizing the region. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting oil prices. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. In addition, the situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine.
Bitcoin price surged early last week, touching a new all-time high of $108,200 on Tuesday. Bitcoin could not sustain its upward momentum, however, and dropped below the key $100,000 level later in the week, struggling to maintain the $95,000 level over the weekend. If the BTC price declines, support can be found at $92,200, while resistance may be encountered at the psychological level of $110,000.
Ethereum price also dipped last week, dropping from $4,100 to $3,270. If Ethereum's price declines, it may encounter support near $3,100, while if it increases, resistance may be encountered near $4,100.
Bitcoin price registered a new all-time high of $108,200 last week after US President-elect Donald Trump confirmed plans to build a Bitcoin strategic reserve. Donald Trump has openly declared his support of crypto markets, announcing that he will make the US ‘the crypto capital of the planet’. Growing expectations that the new government will adopt a pro-crypto regulatory and fiscal policy have been boosting crypto markets, especially since Donald Trump announced plans to accumulate a national crypto stockpile.
Trump reaffirmed his pre-election commitment to build a Bitcoin strategic reserve, boosting crypto markets. Speaking to CNBC last Sunday, Trump stressed that other world powers like China are accumulating cryptocurrencies and stated that he wants the US to stay ahead in building a crypto strategic reserve.
Cryptocurrency prices are also affected by central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.25% to 4.50%. However, a 25-basis point rate cut had been fully priced in, and market participants focused mostly on the Fed’s forward guidance.
Indications that the Fed will follow a more hawkish approach than previously anticipated put pressure on crypto markets last week. In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a hawkish message, emphasizing the need to be cautious about further rate cuts. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.
Geopolitical concerns are promoting a risk aversion sentiment, however, lowering the appeal of high-risk assets such as cryptocurrencies. The situation between Russia and Ukraine remains critical, with Russia threatening to use nuclear missions against Ukraine. In addition, tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. Meanwhile, the civil war in Syria has been rekindled, further destabilizing the region and lowering risk sentiment.
BTC/USD 1h Chart
ETH/USD 1h Chart
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