Important calendar events
The dollar dipped last week, and the dollar index dropped from 106.7 to 106.0. US treasury yields also declined on rising Fed rate cut expectations, with the US 10-year bond yield dropping from 4.23% to 4.16%.
The US Federal Reserve cut interest rates by 25 basis points in November to a target range of 4.50% to 4.75%. The Fed had already launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. Fed Chair Jerome Powell has stated that the progress of disinflation is steady, and the labor market is strong, permitting a shift towards a more neutral monetary policy.
Dovish Fedspeak last week lifted rate cut expectations in December, putting pressure on the dollar. FOMC policymaker Mary Daly stressed the need to keep moving towards a normalized policy and stated that a rate cut in December is still on the table. Fed member Adrianna Kugler stated that disinflation continues and that the central bank aims to move policy toward more neutral settings. Fed’s Christopher Waller stated outright that he is likely to vote in favor of a rate cut in December. Market odds of a December rate cut rose to 90% after the release of robust US labor data on Friday, putting pressure on the dollar.
Persistent price pressures may prevent the Federal Reserve from pivoting to a less restrictive monetary policy, however. US inflation is proving to be sticky despite the Federal Reserve’s efforts to bring it down to its 2.0% target. Headline inflation rose to 2.6% year-on-year in October from 2.4% in September.
On the data front, Manufacturing PMI data released on Monday for the US were optimistic, boosting the dollar. ISM Manufacturing PMI rose to 48.4 in November from 46.5 in October against market expectations of 47.5. November’s print remained below the threshold of 50.0 which denotes industry expansion, but an improved reading indicates that the US manufacturing sector is contracting at a slower pace.
ISM Services PMI data on Wednesday, on the other hand, were disappointing. ISM Services PMI dropped sharply to 52.1 in November from 56.0 in October against expectations of a 55.7 reading. The US Service sector remained in expansionary territory, as evidenced by a print above 50.0, but the sector’s growth rate is slowing down.
Preliminary GDP data for the third quarter of the year showed that the US economy expanded by only 2.8% in the third quarter of 2024, after rising by 3.0% in the second quarter of the year and by 1.4% in the first quarter of the year, while markets were anticipating 3.0% growth in the third quarter of 2024. The US economy is suffering from prolonged tightening, raising recession concerns.
Last week, labor data showed that the US jobs sector remains robust, raising Fed rate cut expectations in December to 90%. Non-farm payrolls, or NFPs on Friday showed significant improvement in November compared to October’s reading. NFPs rose by 227K in November, surpassing market expectations of 200K. In addition, October’s print was revised upward to 36K from 12K previously. The US Unemployment Rate also rose, however, to 4.2% in November from 4.1% in October, which was in line with market expectations. Average Hourly Earnings grew by 0.4% in November but remained steady at 4.0% annually, exceeding market forecasts of 3.9%.
ADP Non-Farm Employment Change on Wednesday showed that fewer new jobs opened in November, indicating that the US labor market is weakening. ADP Non-Farm Employment Change fell to 146K in November from 184K in October against expectations of 152 K. JOLTS data on Tuesday, however, showed that the number of job openings in October rose to 7.74M from 7.37M in September, beating market expectations of 7.48 M.
This coming week, labor data on Tuesday are likely to cause increased volatility in the price of the dollar in light of last week’s strong labor data. More importantly, CPI inflation data on Wednesday are expected to influence the price of the dollar strongly. Market analysts predict an uptick in US inflation in November. Monthly inflation is expected to rise by 0.3% in October, bringing annual headline inflation up to 2.7% from 2.6% in October. US PPI inflation data are due on Thursday and are also expected to show that producer prices are rising in the US, indicating that disinflation in the US is stalling.
Several policymakers have been speaking in favor of a rate cut in December in the past few weeks, stressing, ng, however, that the Fed’s outlook remains data-dependent. Markets are pricing in a rate cut in December with almost 90% probability. This week’s inflation data are the last major economic data due before the Fed policy meeting in December, which may prevent the Fed from cutting interest rates.
The Euro weakened against the dollar early last week as a climate of political instability prevailed in France. EUR/USD dipped from 1.056 to 1.047 mid-week but pared losses towards the end of the week, bouncing back to the 1.056 level. If the EUR/USD pair declines, it may find support at 1.033, while resistance may be encountered near 1.065.
The Euro was under pressure last week as a climate of political instability prevailed in France. France’s Prime Minister, Michel Barnier activated a special legislation to surpass the French Parliament and have his social security bill adopted on Monday. This move backfired against the French Prime Minister, however, as the two main parties of the government’s opposition put forward a no-confidence vote. The French government collapsed and Barnier resigned after he lost the vote of no-confidence last week. This week, French President Emmanuel Macron will be tasked with naming a new prime minister to replace Michel Barnier. Increased volatility in the EUR/USD pair is expected this week as a new government will likely be formed in France.
The ECB lowered its benchmark interest rate by 25 basis points in October, bringing its main refinancing rate to 3.40%. The ECB started its easing cycle in June, lowering interest rates by 25bps for the third time this year in October.
This coming week markets will focus on the ECB rate decision on Thursday. A rate cut of 25 basis points is fully priced in, while some market analysts anticipate an even steeper rate cut of 50 bps. Most ECB policymakers, however, have been vocal about the merits of gradual rate cuts. The ECB is expected to cut interest rates up to five more times next year until neutral policy settings are reached. Traders will pay special attention to ECB President Christine Lagarde’s press conference after the policy meeting on Thursday, for hints into the central bank’s rate outlook.
Most ECB policymakers’ speeches last week were dovish, raising expectations of another rate cut this coming week. On Monday, ECB member Phillip Lane hinted that the central bank should move forward with additional rate cuts. On a similar note, ECB’s Martins Kazaks stated on Monday that rate cuts must continue. ECB policymaker Robert Holzmann also delivered a dovish speech on Tuesday, stating that he is in favor of a 25-basis point rate cut in December.
Christine Lagarde, however, was more cautious while testifying before the European Parliament's Committee on Economic and Monetary Affairs on Wednesday. Lagarde stated that weak economic growth is expected shortly, while inflationary pressures are likely to rise temporarily in the fourth quarter of the year. Lagarde maintained her cautious stance and has not committed to future rate cuts, emphasizing that the ECB will adopt a data-dependent approach.
On the data front, EU Services PMI data released for the Eurozone on Wednesday exceeded expectations, providing support for the Euro. EU Final Services PMI rose to 49.5 in November from 49.2 in October, exceeding expectations of a 45.2 print. The Services PMI index remained below the threshold of 50.0 in November, indicating that the sector continues to contract, but at a reduced pace. France’s PMI Services readings led the positive EU data on Wednesday. France’s economic outlook is improving, which might serve to minimize the impact on the Euro from the country’s recent political instability.
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.
GBP/USD edged higher last week, rising from 1.272 to 1.274 as the dollar weakened. If the GBP/USD rate goes up, it may encounter resistance at 1.304, while support may be found near 1.250.
At the latest BOE policy meeting, MPC members voted with a strong majority of 8-1 to cut rates to 4.75%. Bank of England Governor Andrew Bailey stated that the central bank intends to adopt a gradual approach to cutting interest rates. This would give policymakers time to assess the impact of the Government’s new budget on inflation.
In an interview with the Financial Times on Wednesday, Bailey stated that he sees four BOE rate cuts in 2025. Bailey did not give any information about the BOE’s immediate plans in December and markets are expecting that the central bank will keep interest rates steady this month. The Sterling declined immediately after Bailey’s statement but recovered soon after as markets had time to digest the news.
On the data front, Final Services PMI data for the UK came in higher than expected on Wednesday, boosting the Sterling. The British Services sector moved to expansionary territory in November, with a PMI print of 50.8, exceeding the threshold of 50.0 that denotes industry expansion, as well as market expectations of a print of 50.0
CPI data showed an uptick in British inflation in October, which may prevent the BOE from cutting interest rates further. Headline inflation in the UK rose to 2.3% year-on-year in October from 1.7% in September, surpassing expectations of 2.2%. Core annual inflation, which excludes food and energy, climbed to 3.2% in October from 3.2% in September against 3.1% anticipated.
GDP data showed that the British economy contracted by 0.1% % in September, falling short of expectations of 0.2% expansion. In addition, Preliminary GDP data for the third quarter of the year showed that the British economy expanded by just 0.1% against expectations of 0.2% expansion. In addition, GDP data for the second quarter of 2024 were revised downward to reflect 0.5% growth against initial estimates of 0.6%.
This coming week the most important data in the economic calendar for the UK are the monthly GDP data due on Friday. Markets anticipate that the British economy started to expand again by 0.1% in October, after falling into contractionary territory in September.
USD/JPY traded sideways last week, oscillating around the key 150.0 level with low volatility. If the USD/JPY pair declines, it may find support at 148.4. If the pair climbs, it may find resistance at 156.7.
The USD/JPY has been trading precariously close to the 150.0 level, which is considered a line in the sand for an intervention in support of the Yen. Expectations of a BOJ rate hike in December are fluctuating strongly this week, creating volatility in Yen price.
The BOJ maintained its current monetary policy guidelines steady and its interest rate at 0.25% at its latest policy meeting. The BOJ had pivoted to a more hawkish policy at its meeting in July, raising interest rates by 15 basis points, the BOJ’s largest rate hike since 2007. The BOJ had already hiked interest rates once more in March, ending its negative interest rate policy.
BOJ Governor Kazuo Ueda’s forward guidance was hawkish. Ueda hinted at another rate hike in the following months, if economic and inflationary conditions are met. In addition, Ueda stated last week that the next interest rate hikes are nearing, in the sense that economic data are on track. Ueda also stressed that the BOJ will lower monetary easing at the appropriate time to ensure that Japan’s inflation rises to 2%.
BOJ rate hike expectations in December went up to 60% on Monday, boosting the Yen. On Wednesday, however, media reports that the BOJ will likely wait until the start of the new year to hike interest rates brought rate hike expectations down to 40%. Markets are not convinced that the BOJ will raise interest rates this month, putting pressure on the Yen.
The BOJ will likely pivot to a more restrictive monetary policy in the following months, which will provide some much-needed support for the Yen. At the same time, the US is easing interest rates, moving towards a less restrictive monetary policy, which is slowing down the USD/JPY’s ascent.
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 according to CPI data released on Wednesday. BOJ Core CPI, however, dropped to 1.5% year-on-year in October from 1.7% in September against expectations of 1.8%.
Japan’s economy expanded by 0.2% in the third quarter of the year, down from 0.7% in the second quarter. The Japanese economy has started to expand, after shrinking by 0.5% in the first quarter of the year.
Gold prices traded sideways last week, hovering close to the $2,630 per ounce mark. If gold prices rise, they may encounter resistance at $2,716 per ounce, while if gold prices decline, support may be encountered near $2,540 per ounce.
The US Federal Reserve cut interest rates by 25 basis points in November to a target range of 4.50% to 4.75%. Gold prices are supported by expectations of further Fed rate cuts. Market odds of a December rate cut rose to 90% after the release of robust US labor data on Friday, 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 dipped last week, and the dollar index dropped from 106.7 to 106.0. US treasury yields also declined on rising Fed rate cut expectations, with the US 10-year bond yield dropping from 4.23% to 4.16%.
Geopolitical tensions continue to rise, boosting demand for safe-haven assets. A 60-day ceasefire between Israel and Lebanon has been officially declared. Reports, however, that Israel has been repeatedly violating the ceasefire, propped up gold prices last week. In addition, Russian President Vladimir Putin stated that Russia may use its new nuclear-capable missiles against Ukraine in response to Ukraine’s using long-range missiles to attack Russian territories.
Meanwhile, the civil war in Syria was rekindled last week, further destabilizing the region. In a surprise offensive, Syrian rebels have captured Damascus and toppled the government. President Bashar al-Assad has been forced to flee the country and according to recent reports he has asked for Asylum in Moscow. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting gold prices.
President-elect Donald Trump stated on social media last week that BRICS nations would face 100% tariffs if they created a new currency to replace the dollar. BRICS is an intergovernmental organization comprising nine countries – Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates. Trump’s threats raised concerns that the incoming US President is going to start multiple trade wars, boosting the dollar and putting pressure on gold prices. Trump communicated more tariff measures last week, stating that his administration will impose an additional 25% tariff on imports from Canada and Mexico, with an additional 10% to the 60% already announced during his election campaign on Chinese goods.
Oil prices were volatile last week, with WTI price rising from $68.3 to $70.5 per barrel early in the week, but paring gains towards the end of the week, dropping to $67.2 per barrel. If oil prices retreat, they may encounter support near $66.9 per barrel, while resistance may be found near $73.1 per barrel.
Oil prices were volatile early last week, ahead of the OPEC+ Output Policy meeting on Thursday. The cartel announced on Thursday that it will extend its voluntary production cuts until the end of the first quarter of 2025, boosting oil prices temporarily. The rally was short-lived, however, and oil prices gave up the week’s gains on Friday.
OPEC+ members have previously stated that they intend to gradually end production cuts through next year. However, oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. Oversupply, however, coming from non-OPEC+ countries, is putting pressure on oil prices despite OPEC’s output cuts.
Concerns of a broadening conflict in the Middle East have boosted oil prices in the past year. A 60-day ceasefire between Israel and Lebanon has been officially declared, putting pressure on oil prices. Reports, however, that Israel has been repeatedly violating the ceasefire, boosted oil prices last week. In addition, Russian President Vladimir Putin stated that Russia may use its new nuclear-capable missiles against Ukraine in response to Ukraine’s using long-range missiles to attack Russian territories.
Meanwhile, the civil war in Syria was rekindled last week, further destabilizing the region. In a surprise offensive, Syrian rebels have captured Damascus and toppled the government. President Bashar al-Assad has been forced to flee the country and according to recent reports he has asked for Asylum in Moscow. The Syrian rebel army is currently in charge and political instability in Syria is reigniting geopolitical risks, boosting oil prices.
Oil prices are kept in check by high central banks’ interest rates. Market odds of a December rate cut rose to 90% after the release of robust US labor data on Friday, boosting oil prices.
Bitcoin price rose above the $100,000 milestone last week for the first time in history, registering a new all-time high of $104,446. Bitcoin price retreated a little towards the end of the week, as traders rushed to realize their gains, struggling to maintain the $100,000 level over the weekend. If BTC price declines, support can be found at $90,800, while resistance may be encountered at the recent all-time high of $104,446.
Ethereum price also surged last week, rising above the key $4,000 level and touching $4,080, its highest value since March. If Ethereum's price declines, it may encounter support near $3,250, while if it increases, resistance may be encountered near $4,080.
Bitcoin price has been attempting to go through the key $100,000 barrier for the past few weeks. US President-elect 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 Bitcoin stockpile.
Reports that Trump plans to appoint Paul Atkins as the new Chair of the Securities and Exchange Commission (SEC) boosted crypto markets last week. Atkins is currently the CEO at Patomak Global Partners and has served as SEC commissioner in the past. Atkins’ appointment raised market expectations of less stringent legislation for cryptocurrencies, propping up crypto markets.
Geopolitical concerns are promoting a risk aversion sentiment, however, lowering the appeal of high-risk assets such as cryptocurrencies. A 60-day ceasefire between Israel and Lebanon has been officially declared. Reports, however, that Israel has been repeatedly violating the ceasefire, lowered risk sentiment last week. Meanwhile, the civil war in Syria was rekindled last week, further destabilizing the region.
Cryptocurrency prices are also affected by central banks’ interest rates. High interest rates are restricting economic growth, putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. Market odds of a December rate cut rose to 90% after the release of robust US labor data on Friday, propping up cryptocurrencies.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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