Important calendar events
The dollar gained strength last week and the index rose from 109.0 to 109.6, its highest value over two years. US treasury yields also increased, with the US 10-year bond yield rising from 4.62% to 4.77%. The US trading day was shortened on Thursday due to the National Day of Mourning for former President Jimmy Carter.
The dollar has gained strength on expectations that Trump’s fiscal policies and trade tariffs will boost economic growth. On Monday, however, reports that Trump’s tariffs will be more moderate than previously anticipated, drove the dollar down. According to the Washington Post, Trump is considering imposing international tariffs that are only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.
The uncertainty surrounding Trump’s proposed tariffs rose even more on Wednesday after CNN reported that the incoming US President is considering declaring a national economic emergency to provide legal justification for the new tariffs. The news agency cited four unidentified sources familiar with the matter. According to the CNN article, the declaration of a national emergency would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as IEEPA. The dollar gained strength after the release of the CNN article, as Trump’s risky economic plans boosted demand for safe-haven assets.
Trump will take office on January 20 and his proposed tariffs could potentially ignite trade wars. In addition, Tramp’s plans may reignite inflationary pressures. Concerns that global inflation will rise, triggered a shift towards safe-haven assets this week, boosting the dollar. Global bond yields surged on Thursday on the rising inflation outlook.
On the data front, traders last week focused mainly on the release of Nonfarm Payrolls (NFPs) on Friday. Friday’s NFPs showed that the US economy added 256K jobs in December against 160K anticipated. In addition, November’s print was revised downward to 212K from 227K originally. December’s NFP report was more optimistic than anticipated and showed that the US jobs sector remains robust.
In addition, the US unemployment rate came in at 4.1% in December coming down from 4.2% in November, against expectations of a 4.2% reading. Average hourly earnings increased by 0.3% in December, following a 0.4% rise in November. Wages in the US rose by 3.9% year-on-year in December after rising by 4.0% in November.
ADP Non-Farm Employment Change on Wednesday showed that US employment rose by 122K people in December, compared to a 146K increase recorded in November, coming below market expectations of 140K. US jobless claims came in at 201K in the week ending January 4, following a print of 211K the week before, against market expectations of 218K.
US JOLTS openings released on Tuesday came in above expectations, indicating that the US labor market remains robust and boosting the dollar. The number of job openings rose to 8.09M in November from 7.83M in October, above market expectations of 7.7M. In addition, ISM Services PMI rose to 54.1 in December from 52.1 in November, exceeding market estimates of 53.3. A print above 50.0 indicates that the US Services sector continues to expand.
The Institute for Supply Management (ISM) data released on Tuesday were slightly inconsistent with US Services PMI data reported on Monday by S&P Global. According to the S$P data, Final Services PMI for December came in at 56.8, below expectations of 58.5. US factory orders dropped by 0.4% in November against expectations of a 0.3% drop, but October’s print was revised upward to reflect 0.5% growth.
The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish message after the policy meeting, 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, as inflation in the US remains above the central bank’s 2% target.
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.
The minutes of the latest FOMC meeting were released on Wednesday and confirmed that Fed policymakers are shifting to a more hawkish policy. Most Fed policymakers voted in favor of a 25 basis point rate cut in December but were cautious about future rate cuts, stating that it would be appropriate to slow down the pace of easing. This indicates that interest rates might stay at high levels for longer than previously anticipated.
Several Fed policymakers delivered speeches last week, reiterating opinions expressed in the FOMC meeting minutes released on Wednesday. Most policymakers advised caution in moving forward with rate cuts and were in favor of a gradual and slow approach in returning to neutral policy settings. The NFP report released on Friday showed that the US jobs sector remains secure and solidified policymakers’ shift to a more hawkish direction.
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.
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.
This coming week is heavy with important US data. Key US economic data releases during the week are likely to cause volatility in the price of the dollar. US inflation data in particular are likely to affect the Fed’s rate outlook and are eagerly awaited by traders. Producer Price Index (PPI) data is due on Tuesday, and more importantly Consumer Price Index (CPI) data on Wednesday will show if inflationary pressures in the US remain high. Wednesday’s inflation report is expected to show that headline inflation rose by 2.9% year-on-year in December from 2.7% in November, indicating that the progress of disinflation is slow. US Retail Sales data on Thursday are indicators of economic health and are also likely to affect the dollar.
EUR/USD surged from 1.030 to 1.042 early last week, but plummeted to 1.024 later in the week, as the dollar gained strength. If the EUR/USD pair declines, it may find support at 1.021, while resistance may be encountered near 1.045.
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. 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. Expectations that the ECB will return to a more normalized policy setting sooner than the Fed are putting pressure on the EUR/USD rate. This coming week the minutes of the latest ECB meeting are due on Thursday and may provide some insight into the central bank’s rate outlook.
CPI Flash estimates released on Tuesday showed that Eurozone inflation remains above the ECB’s 2% target and may prevent the ECB from cutting interest rates further. Eurozone inflation rose to 2.4% year-on-year in December from 2.2% in November, which was in line with expectations. Every month, Eurozone inflation rose 0.4% in December after dropping 0.3% in November. Core CPI, which excludes food and energy, remained steady at 2.7% in December, matching market expectations. This coming week, Final CPI and Core CPI data for December are due on Friday. The final data, however, is expected to match last week’s Flash estimates.
German Preliminary CPI data released on Monday also came in above expectations. German CPI rose to 2.6% year-on-year in December from 2.2% in November, exceeding market expectations of 2.4%. Every month, German inflation rose by 0.4% after declining by 0.2% in November. The Eurozone Sentix Investor Confidence Index released on Monday came in at -17.7 in January falling below December’s print of -17.5, indicating that investors’ confidence is declining.
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 plummeted last week on heightened concerns about British bond yields and GBP/USD plunged from 1.256 to 1.220, its lowest level since November 2023. If the GBP/USD rate goes up, it may encounter resistance at 1.261, while support may be found near 1.218.
Concerns that global inflation will rise, caused a surge in global bond yields on Thursday. US President-elect Donald Trump’s proposed fiscal policies and trade tariffs may reignite inflationary pressures.
UK borrowing costs rose to their highest level since 1998 last week, raising concerns for the British economy and causing the Sterling to plummet. Long-term bonds on UK government debt (gilts) spiked on Thursday, amid a global rise in bond yields and concerns over the future of the British economy. The yield on the 10-year gilt hit 4.82%, the highest since 2008, while the yield on the 30-year UK gilt rose to 5.36%, its highest level since 1998. Rising borrowing costs pose a big problem for UK Chancellor Rachel Reeves, as she was about to implement her administration’s first budget, in which she has vowed to cut public spending.
UK Treasury Minister Darren Jones attempted to reassure markets on Thursday, stating at the House of Commons that it is normal for treasury yields to fluctuate. In addition, Jones clarified that the government's decision to borrow only for investment was non-negotiable.
The BOE kept interest rates steady at its latest policy meeting, having cut interest rates twice already this year. MPC members voted 6-3 to keep rates on hold, with three members in favor of cutting interest rates.
Bank of England Governor Andrew Bailey has stated that the central bank needs to adopt a gradual approach to future rate cuts. Bailey has 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, British Construction PMI data released on Tuesday were disappointing, putting pressure on the Sterling. UK Construction PMI came in at 53.3 in December from 55.2 in November against expectations of a 54.3 print. The British Construction sector continues to expand, as evidenced by a print above the threshold of 50.0, but it is expanding at a reduced pace. Similarly, UK Services PMI data released on Monday revealed a drop in the PMI index to 51.1 in December from 51.4 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. This coming week, UK inflation data for December are due on Wednesday and are expected to show that inflationary pressures in the UK remain high.
Final GDP data for the third quarter of the year showed that the British economy is stagnating. Earlier forecasts indicated slight economic growth by 0.1% in the third quarter of 2024, but the British economy is being stifled by high interest rates and cannot expand. GDP data due on Thursday are expected to show that the British economy expanded by 0.2% in November after contracting 0.1% in October.
USD/JPY edged higher last week, rising above the 158.5 level, before paring some gains and closing at 157.7 on Friday. If the USD/JPY pair declines, it may find support at 155.9. If the pair climbs, it may find resistance at 159.0.
The USD/JPY rate has been trading precariously close to the key 160.0 level. The last time the Yen dropped to this point, it triggered an intervention by the Japanese government to support the currency, last April and May.
The BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25% at its latest policy meeting. 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. In a recent speech, Ueda reaffirmed the BOJ’s commitment to continue raising interest rates if Japan’s economy continues to improve and the BOJ's 2% inflation target is reached. Ueda cautioned, however, that the timeline of the rate hike will depend on economic and inflationary conditions.
Odds of a BOJ rate hike at the next policy meeting in January are rising, but the exact timing of the next BOJ rate hike remains uncertain. Markets are pricing in a 25-basis points rate hike by the end of March, which will raise Japan’s interest rate from 0.25% to 0.50%.
Inflation in Japan is on the rise, raising the odds of future rate hikes and providing support for the Yen. The headline Tokyo CPI inflation rose to 3.0% annually in December, up from 2.6% in November. Headline inflation in Japan rose by 2.7% year-on-year in November from 2.3% in October against expectations of a 2.6% print. In addition, BOJ Core CPI rose to 1.7% year-on-year in November from 1.5% in October against expectations of 1.5%.
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 traded at an uptrend last week, rising from $2,630 to $2.690 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 $2,582 per ounce.
Gold prices are driven by opposing forces. Increased safe-haven demand due to geopolitical tensions is driving gold prices up. In addition, the recent uncertainty surrounding President-elect Donald Trump’s proposed trade tariffs is driving investors towards safe assets. On the other hand, however, the Fed’s recent hawkish shift is putting pressure on gold prices.
Last week, reports that Trump’s tariffs will be more moderate than previously anticipated caused turmoil in markets. According to the Washington Post, Trump is considering imposing international tariffs that are only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.
The uncertainty surrounding Trump’s proposed tariffs rose even more on Wednesday after CNN reported that the incoming US President is considering declaring a national economic emergency to provide legal justification for the new tariffs. The news agency cited four unidentified sources familiar with the matter. According to the CNN article, the declaration of a national emergency would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as IEEPA. Gold prices rose after the release of the CNN article, as Trump’s risky economic plans boosted demand for safe-haven assets.
Trump will take office on January 20 and his proposed tariffs could potentially ignite trade wars. In addition, Tramp’s plans may reignite inflationary pressures. Concerns that global inflation will rise triggered a shift towards safe-haven assets last week, boosting gold prices.
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 gained strength last week and the index rose from 109.0 to 109.6, its highest value over two years. US treasury yields also increased, with the US 10-year bond yield rising from 4.62% to 4.77%. Gold prices have been defying the rise in the US dollar recently, however, as safe-haven demand is boosting both those typically rivaling assets.
Gold prices are supported by increased Fed rate cut expectations. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Fed Chair Jerome Powell delivered a hawkish speech after the meeting, 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.
In addition, 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.
Last week, the Chinese central bank reported an increase in its gold reserves by 10 tons in December. The Chinese central bank raised its gold reserves for the second month in a row in December, boosting gold prices.
Safe-haven demand remains high, due to uncertainty in the Middle East, boosting gold prices. 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.
This coming week important US economic data releases are likely to cause volatility in gold prices. US inflation data in particular are likely to affect the Fed’s rate outlook and are eagerly awaited by traders. Producer Price Index (PPI) data is due on Tuesday, and more importantly Consumer Price Index (CPI) data on Wednesday will show if inflationary pressures in the US remain high. Wednesday’s inflation report is expected to show that headline inflation rose by 2.9% year-on-year in December from 2.7% in November, indicating that the progress of disinflation is slow.
Oil prices surged last week, with WTI price rising from $74.2 per barrel to $76.7 per barrel. If oil prices retreat, they may encounter support near $68.8 per barrel, while resistance may be found near $78.8 per barrel.
Oil prices have been gaining strength since last week as cold weather in the US and the EU raises oil demand. In addition, supply concerns have been driving oil up. On Tuesday, a report by Bloomberg stated that OPEC oil production fell by 120 thousand barrels per day in December, boosting oil prices.
Increasing Western sanctions against Russia and Iran have been paying off, limiting the oil output of these countries. US President Joe Biden imposed the broadest package of sanctions on Russian oil exports so far on Friday, causing oil prices to surge. The outgoing US President’s administration is targeting Russia's oil and gas revenues and is reportedly planning to impose more sanctions ahead of Donald Trump's inauguration on 20 January. In addition, incoming US President Donald Trump is expected to reinforce restrictions on Iran's oil exports, raising oil supply concerns.
US crude oil inventories released on Wednesday, however, showed a lower draw in US crude stockpiles than originally anticipated, putting pressure on oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 1.0M barrels for the week to January 3, against expectations of a much larger drop by 1.8M barrels and following a drop of 1.2M barrels the week before.
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.
Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. 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. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. 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.
Concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. 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.
Reports that President-elect Donald Trump’s tariffs will be more moderate than previously anticipated, caused turmoil in markets on Monday. According to the Washington Post, Trump is considering imposing international tariffs that are only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.
The uncertainty surrounding Trump’s proposed tariffs rose even more on Wednesday after CNN reported that the incoming US President is considering declaring a national economic emergency to provide legal justification for the new tariffs. The news agency cited four unidentified sources familiar with the matter. According to the CNN article, the declaration of a national emergency would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as IEEPA.
Bitcoin price broke the $100,000 barrier early last week, rising above $102,500 on Tuesday, but plummeted later in the week, trading near the $94,000 level during the weekend, as a risk aversion sentiment prevailed in markets. If BTC price declines, support can be found at $90,000, while resistance may be encountered at $103,000.
Ethereum price also declined last week, dropping from $3,700 to $3,240. If Ethereum's price declines, it may encounter support near $3,100, while if it increases, resistance may be encountered near $3,740.
Bitcoin price registered a new all-time high of $108,200 in December 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 reaffirmed his pre-election commitment to build a Bitcoin strategic reserve.
Renewed expectations of the creation of a US Bitcoin reserve boosted Bitcoin price on Monday. Analysts at a Wall Street investment bank have put the odds of incoming US president Donald Trump creating a bitcoin reserve in 2025 at 60%, causing its price to surge above the key $100,000 level once more.
The uncertainty surrounding US President-elect Donald Trump’s trade tariffs is causing a risk aversion sentiment driving high-risk assets down. On Monday, reports that Trump’s tariffs will be more moderate than previously anticipated caused turmoil in markets. According to the Washington Post, Trump is considering imposing international tariffs that are only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.
The uncertainty surrounding Trump’s proposed tariffs rose even more on Wednesday after CNN reported that the incoming US President is considering declaring a national economic emergency to provide legal justification for the new tariffs. The news agency cited four unidentified sources familiar with the matter. According to the CNN article, the declaration of a national emergency would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as IEEPA. Crypto markets dipped after the release of the CNN article, as Trump’s risky economic plans lowered the appeal of high-risk assets such as cryptocurrencies.
Trump will take office on January 20 and his proposed tariffs could potentially ignite trade wars. In addition, Tramp’s plans may reignite inflationary pressures. Concerns that global inflation will rise, triggered a risk aversion sentiment this week, putting pressure on crypto markets.
Cryptocurrency prices are also affected by central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%. Indications that the Fed will follow a more hawkish approach than previously anticipated are putting pressure on crypto markets. Fed Chair Jerome Powell’s stance has been more hawkish lately, 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, lowering the appeal of high-risk assets such as cryptocurrencies. The situation between Russia and Ukraine remains critical. In addition, tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area.
BTC/USD 1h Chart
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