Following the U.S. elections, global markets, bracing for Donald Trump’s second term, continue to navigate a volatile path amid uncertainties surrounding Federal Reserve interest rate policies and escalating geopolitical tensions.
Key Takeaways:
Trump's likely return is creating market uncertainty and volatility across global financial markets.
Dollar strength persists but shows signs of peaking amid mixed market signals.
Gold fails to maintain momentum despite geopolitical tensions.
New graduates face worst job prospects in decades.
Markets are losing confidence in near-term Fed rate cuts.
The U.S. dollar, world’s reserve currency, has been strengthening since late September. This is fueled by concerns that Trump's anticipated tax and tariff policies may drive up U.S. inflation, deterring the Fed from further interest rate cuts. Bloomberg’s dollar index has climbed nearly 5% during this period. However, recent market indicators suggest that the dollar’s rally might be stalling, leaving market watchers divided on its future trajectory.
Technical indicators hint at weakening momentum driven by the election, signaling that the dollar might have entered overbought territory. Meanwhile, net long positions in the dollar have hit a three-week low, according to a survey by JPMorgan Chase & Co., prompting cautious views among market watchers. Some analysts warn that the greenback may struggle to revisit its recent highs in the short term.
On the other hand, many investment banks continue to back a robust U.S. dollar. Goldman Sachs strategists highlight the inflationary potential of Trump’s protectionist policies, which could slow the Fed’s pace of rate cuts. They project that the dollar index could gain another 3% against major currencies next year. Similarly, while Morgan Stanley predicts a more range-bound dollar by 2025, they expect it to climb further this year.
Despite the so-called “Trump trade” weighing on global markets, the timing, extent, and economic impact of Trump’s proposed policies remain uncertain. Fed Chair Jerome Powell recently remarked that the central bank prefers to "wait and see" regarding these policies' implications, emphasizing that the U.S. economy is performing exceptionally well and that the Fed is in no rush to cut rates.
Recent U.S. data suggests that inflationary progress has stalled, while the labor market remains healthy despite some cooling. A report from the U.S. Bureau of Labor Statistics released on Tuesday revealed that the significant slowdown in payroll data observed in October was likely due to temporary factors. Therefore, the November report is expected to reflect a substantial rebound in payroll growth.
However, another report highlighted growing challenges for new graduates seeking employment. Data from the New York Fed revealed that the unemployment gap between recent and established college graduates has reached its highest level since the 1990s, excluding the post-pandemic period.
Hiring in the U.S. is slowing down, highlighting a cooling labor market; however, there are no signs of significant deterioration. This situation provides the Fed with greater flexibility to lower rates at a measured pace. Against this backdrop, swap markets are now pricing in a 59.1% probability of a quarter-point rate cut next month, down from 82.5% the previous week. Besides, the total expected easing through mid-2025 now stands at less than 60 basis points.
Diminished rate-cut expectations are driving higher yields in U.S. Treasury bonds, providing further support for the dollar. Additionally, rising tensions between Russia and Ukraine, alongside developments in the Middle East, may continue to support the greenback by fueling safe-haven demand.
Gold Slips Below $2,625 After Three-Day Rally
Gold prices, initially buoyed by safe-haven demand fueled by escalating tensions between Russia and Ukraine, have come under renewed pressure following a three-day rally. After climbing approximately 3% since the start of the week, spot gold has slipped below the $2,625 mark.
The yellow metal’s gains earlier this week were supported by a weakening US dollar, which had seen strong post-election momentum. However, high US Treasury yields continue to weigh on the non-yielding asset. Looking ahead, expectations around the Federal Reserve's policy trajectory are likely to remain a key driver for gold prices.
Oil Prices Fluctuate Amid Geopolitical Risks and Demand Concerns
Oil prices held steady after an industry report released ahead of government data showed an increase in US crude inventories.
The market remains volatile, weighed down by weak demand prospects from China, ample supply concerns, geopolitical tensions, and a strong US dollar. Analysts note that the oil market currently lacks a strong catalyst. Nevertheless, ongoing worries over demand outlook continue to exert downward pressure on the current trend.
For news traders, this environment underscores the importance of monitoring both scheduled economic releases and geopolitical developments. A successful forex news trading strategy requires quick reaction to breaking news while maintaining awareness of broader market themes like central bank policies and diplomatic statements that can suddenly shift currency momentum. Open and fund your account instantly to start trading immediately today. Enjoy swap-free trading on our most popular instruments at Duhani Capital!
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