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16/12/2024 - 08:20 UTCThe U.S. dollar gained strength in the past week, appreciating against most major currencies, with the dollar index up by 0.66% on the weekly chart. Recent U.S. economic data suggests a gradual cooling of the job market, aligning with market expectations. Meanwhile, a decline in producer price inflation strengthened the market's current outlook that a Federal Reserve interest rate cut will take place on December 18th but a slower pace of rate reductions are expected in the year ahead.
Expectations for a 25-basis point rate cut at the upcoming FOMC meeting, currently stand at 97.1%, as indicated by the CME FedWatch Tool. Odds for rates to remain unchanged stand at 2.9%.
The BOJ is expected to maintain its current interest rates at its policy meeting later this week, as officials seek more time to evaluate global risks and the outlook for wage growth in 2024. This is in contrast to earlier expectations of a rate hike. Data released last week revealed that Japan's manufacturing sector contracted for the sixth consecutive month due to weak demand, whereas the service sector continued to expand in December.
The US stock market displayed mixed performance on Friday, as recent economic data revealed persistent inflation in November, potentially hindering the Federal Reserve's plans to reduce interest rates. Nonetheless, the main stock indices remain close to recently reached highs, supported by ongoing enthusiasm surrounding technology and artificial intelligence. This optimism was further bolstered by strong earnings from chip manufacturers like Broadcom and the eagerly awaited launch of new chips from NVIDIA.
In the cryptocurrency market, Bitcoin reached a new all-time high on Sunday evening. This surge followed a wave of large-scale transactions by major Bitcoin holders ('whales') over the weekend. These whales moved substantial amounts of Bitcoin off exchanges and into their private wallets.
For the week ahead, markets will most likely be focusing on U.S. core retail sales numbers, the interest rate decision of the FOMC and the press conference that follows, and finally the Fed’s favorite gauge for inflation, the Core PCE Price Index.
The EUR/USD pair ended the session on Friday with moderate gains. This upward momentum can be attributed to a weakening US Dollar as US Treasury yields remain subdued ahead of the Federal Reserve’s much-anticipated interest rate decision scheduled for Wednesday.
The Fed is widely expected to implement a 25 basis point rate cut during its final monetary policy meeting of 2024. According to the CME FedWatch tool, market expectations for a quarter-point rate cut are nearly fully priced in.
On the European side, the Euro gained traction after French President Emmanuel Macron appointed centrist François Bayrou as Prime Minister, fostering optimism about political stability.
Gold prices slipped for the second consecutive day on Friday, pressured by higher US Treasury bond yields.
Markets are heavily focused on the Fed’s monetary policy meeting scheduled for December 17-18. Following the announcement, Fed Chair Jerome Powell’s press conference will be closely scrutinized for indications of the central bank’s policy trajectory in 2025.
Gold’s losses deepened after US Secretary of State Antony Blinken noted encouraging signs of a potential Gaza ceasefire, further dampening demand for safe-haven assets.
Oil prices rallied on Friday, climbing approximately 2% to reach a three-week high, driven by expectations of tighter sanctions on Russia and Iran that could restrict supplies, alongside optimism that lower interest rates in the U.S. and Europe may bolster fuel demand.
European Union ambassadors agreed this week to impose a 15th round of sanctions on Russia, targeting its shadow tanker fleet amid its ongoing war in Ukraine. The U.S. is reportedly considering similar measures.
Chinese crude oil imports surged in November for the first time in seven months, driven by refiners increasing purchases from top exporter Saudi Arabia due to attractive pricing. This trend is expected to continue into early 2025, supported by China’s stimulus measures and independent refiners utilizing their import quotas.
The US 500 broke its three-week winning streak on Friday as traders adopted a cautious stance ahead of the Federal Reserve’s policy meeting next week. At market close, the US 30 posted minor losses while the US Tech 100 bucked the trend, rising 0.1%.
Broadcom Inc. surged 24% after the semiconductor giant delivered an upbeat revenue forecast for the current quarter, fueled by increasing demand for chips amid heightened interest in artificial intelligence.
Tesla Inc. gained more than 4% following reports that President-elect Donald Trump may scrap a regulatory program requiring companies to disclose automated vehicle crash data.
The Federal Reserve’s final policy-setting meeting of the year is scheduled for December 17-18, with markets widely anticipating a 25 basis point rate cut.
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