25/11/2024 - 08:43 UTCThe U.S. dollar gained against most major currencies on Friday, with the dollar index (USDX) up by 0.43% and crossing above the 108.0 mark to hit levels last seen in November 2022. The US dollar gained strength due to increased demand as a safe-haven asset, driven by escalating tensions in the Russia-Ukraine war and stronger-than-expected US employment figures. These positive economic indicators have led to expectations of a slower pace of interest rate cuts by the Federal Reserve.
According to the CME FedWatch Tool, market participants are currently assigning a 56.2% probability to a 25 basis point interest rate cut by the Federal Reserve. However, there is a significant 43.8% probability that the Fed will maintain interest rates at their current level.
Gold prices posted substantial weekly gains of 5.6% last week mainly due to geopolitical tensions between Russia and Ukraine that have intensified. However, momentum appears to have weakened early on Monday after the Times of Israel reported that Prime Minister Benjamin Netanyahu was working on how to present the ceasefire deal to the public, after agreeing in principle to the Lebanon deal. The deal could see a 60-day ceasefire with Hezbollah and a de escalation of military action on both sides.
Wall Street sentiment was overall positive in the last few sessions, with the main stock indices ending the week with strong performances, after a boost from cyclical stocks, financials, industrials and technology. The upcoming release of the US Personal Consumption Expenditures Price Index, a key inflation indicator closely monitored by the Federal Reserve, will be crucial for investors assessing the potential trajectory of interest rates. Meanwhile, the Black Friday shopping season and retail earnings reports will offer valuable information about consumer behavior and spending patterns in the face of higher prices.
For the week ahead, markets will be focusing on several key reports including the FOMC Meeting Minutes for more insight on the Fed’s latest interest rate decision, the U.S. Preliminary GDP, and the Core PCE Price Index the Federal Reserve’s preferred measure of inflation.
The EUR/USD pair faced a significant downturn on Friday, hitting an intraday low of nearly 1.0330—a level not seen in almost two years—as the US Dollar extended its rally.
The preliminary HCOB Eurozone Purchasing Managers Index (PMI) report for November indicated a surprising contraction in overall business activity, raising concerns about the region’s economic trajectory.
The weakening economic data has added to existing concerns among European Central Bank (ECB) policymakers about sluggish growth and potential risks from escalating trade tensions with the United States.
Meanwhile, the US Dollar continues to strengthen as market participants cast doubt on the Federal Reserve’s willingness to cut rates in December, despite earlier expectations.
Gold prices rallied to a two-week high on Friday buoyed by a decline in US Treasury bond yields and persistent geopolitical risks.
The drop in US Treasury yields provided a tailwind for gold prices. Heightened geopolitical risks also supported the metal. Concerns over the Russia-Ukraine conflict escalating into a broader US-Russia confrontation and rising tensions in the Middle East, particularly involving Israel and Lebanon, have boosted gold’s appeal as a safe-haven asset.
On the economic front, the US S&P Global Flash PMIs for November highlighted an improvement in business activity. Additionally, the University of Michigan’s Consumer Sentiment Index showed an uptick, with inflation expectations aligning closer to the Federal Reserve’s 2% target over the next year.
Oil prices surged more than 1% on Friday, reaching a two-week high, as escalating tensions in Ukraine fueled a heightened geopolitical risk premium in the market.
Both benchmarks recorded weekly gains of about 6%, marking their highest levels since November 7. The surge comes as Moscow intensified its offensive in Ukraine, following the United Kingdom and the United States granting Kyiv permission to target deeper into Russian territory with advanced missiles.
U.S. main indexes ended the session on Friday with gains while the US 30 closed at a fresh record high driven by strong gains in cyclical stocks, particularly in the industrial sector, even as tech stocks showed relative weakness.
Economic data released on Friday highlighted the resilience of the U.S. economy. The S&P Manufacturing PMI edged higher to 48.8 in November from 48.5 the previous month, while the Services PMI jumped to 57.0, up from 55.0 in October.
The data has cast doubt on the likelihood of a Federal Reserve interest rate cut in December. Strong inflation readings for October and cautious signals from policymakers have prompted traders to scale back bets on a 25-basis-point rate cut. According to the CME FedWatch Tool, the probability of such a cut now stands at 61.7%.
Investors will closely monitor upcoming key economic indicators, including the Federal Reserve’s meeting minutes and inflation data, for further market direction.
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