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02/12/2024 - 08:53 UTCThe U.S. dollar fell against most major currencies on Friday, with the dollar index (USDX) down by more than 1.5% on the weekly chart. Some recovery is seen early on Monday ahead of a critical week regarding the prospect of U.S. rate cuts. In other news, U.S. President-elect Donald Trump on Saturday demanded that BRICS member countries commit to not creating a new currency or supporting another currency that could replace the dollar or face 100% tariffs.
The key driver for future interest rate movements will be the release of the November jobs report on Friday. Analysts anticipate a job growth of 195,000, but there's potential for adjustments to the October figures due to unfavorable weather conditions, labor strikes, and a low survey participation rate. The unemployment rate is projected to climb marginally to 4.2%.
According to the CME FedWatch Tool, market participants are currently assigning a 67.1% probability to a 25 basis point interest rate cut by the Federal Reserve. However, there is a significant 32.9% probability that the Fed will maintain interest rates at their current level.
Even as the main US stock indices hit record highs in the past week, bullish sentiment appears to have eased ahead of a series of key economic reports due later this week. Nonetheless, more warnings of trade tariffs from President-elect Donald Trump as well as signs of resilience in the U.S. economy continue to fuel optimism for a potential December rate cut. The main focus this week will be on commentary from various Federal Reserve officials, with Chair Jerome Powell's speech on Wednesday being the most significant.
Oil prices edged lower on Friday, closing the week with a decline of over 3%. The downward pressure on prices was fueled by easing concerns over supply disruptions from the Israel-Hezbollah conflict and the prospect of increased oil supply in 2025, despite the anticipated extension of production cuts by the OPEC+ group.
For the week ahead, markets will most likely be focusing on the Non-Farm Payrolls report, the US unemployment rate, US ISM manufacturing and services data, a speech by Federal Reserve’s Jerome Powell and a Preliminary consumer sentiment and inflation expectations survey by the University of Michigan.
The EUR/USD pair began Friday’s session with a mild rally, briefly advancing toward the 1.0600 level as broader markets took advantage of the US holiday to offload the Greenback and favor riskier assets.
However, disappointing pan-European inflation figures soon tempered the Euro’s gains, halting the rally. Despite a softer intraday performance, EUR/USD is on track to post its first weekly gain in a month.
ECB officials have noted that the persistent decline in inflation metrics supports the case for further rate cuts. However, the sharp pace of inflation’s decline is raising concerns about a broader economic slowdown across the Eurozone.
Gold prices gained on Friday ending the session 0.44% higher. Geopolitical tensions in the Middle East saw some easing as Israel and Lebanon agreed to a ceasefire. However, both sides have accused each other of violating the terms of the agreement.
Gold prices may remain supported by ongoing escalations in the Russia-Ukraine conflict. Last week, Russia targeted Ukraine’s energy infrastructure and issued threats of ballistic missile strikes. These actions are seen as a response to the U.S. and U.K. authorizing the deployment of missiles produced within their borders into Russia.
Oil prices edged lower on Friday and posted a weekly decline of more than 3%, pressured by easing concern over supply risks from the Israel-Hezbollah conflict and the prospect of increased supply in 2025 even as OPEC+ is expected to extend output cuts.
The ceasefire Israel-Hezbollah that took effect on Wednesday has reduced oil's risk premium, sending prices lower, despite accusations of violations by both sides.
The OPEC+ group comprising the Organization of the Petroleum Exporting Countries and allies including Russia delayed its next policy meeting to Dec. 5 from Dec. 1. OPEC+ is expected to decide on a further extension to production cuts at the meeting.
The US 500 concluded a holiday-shortened trading session on Friday with a record close, marking its best month of 2024. For November, all three major indices—the US 500, US Tech 100, and US 30—notched impressive gains ranging from 5% to 7%, driven by a series of record highs following the Trump election victory.
Looking ahead, investor attention will turn to comments from Federal Reserve officials, including Chair Jerome Powell, who is set to speak on Wednesday. These remarks are expected to provide additional clarity on the central bank’s interest rate trajectory.
Despite persistent inflationary pressures and continued labor market resilience, markets largely anticipate a 25-basis-point rate cut at the Fed’s December meeting. If realized, this move would bring total rate cuts in 2024 to 100 basis points.
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