This week's economic calendar is light due to Christmas, but key events include UK GDP and US Consumer Confidence on Monday, followed by US Durable Goods Orders on Tuesday. The Fed recently signaled fewer rate cuts for 2025, strengthening the dollar, though recent inflation data came in below expectations. Gold trades around $2,630, heading for a 27% yearly gain despite near-term headwinds.
Key Events and Data to Watch This Week (Time GMT+8)
Monday:
UK Gross Domestic Product (Q3) - 15:00
US Consumer Confidence (Dec) - 23:00
Tuesday:
Australia RBA Meeting Minutes - 08:30
US Durable Goods Orders (Nov) - 21:30
US New Home Sales (Nov) - 23:00
Wednesday:
Christmas Day
Thursday:
US Initial Jobless Claims (Dec 20) - 21:30
Friday:
Japan Tokyo Consumer Price Index (Dec) - 07:30
Japan Unemployment Rate (Nov) - 07:30
Japan Retail Trade (Nov) - 07:30
Policy and Power: How the Fed and Trump Shape the Dollar
Last week, the Federal Reserve highlighted inflation risks, signaling that interest rate cuts next year might be less than previously anticipated. The Fed officials' median quarterly forecast now projects two quarter-point rate cuts in 2025, compared to the four moves expected in September. This cautious stance has pushed the U.S. dollar to its highest level since 2022. However, inflation data released on Friday boosted expectations for rate cuts, causing the dollar to give up some of its recent gains.
The Fed's preferred measure for underlying inflation, the core personal consumption expenditures (PCE) price index, rose by 0.1% in November from the previous month-lower than the 0.2% forecast. On an annual basis, prices increased by 2.8%, unchanged from the previous reading but below economists' 2.9% projection. For all items, prices climbed 0.1% month-on-month and 2.4% year-on-year, slightly up from the previous 2.3% but below the 2.5% estimate.
Meanwhile, personal spending grew by 0.4% in November, up from the previous 0.3%, supported by continued income gains. Wages and salaries posted their highest increase since March, rising by 0.6%, though the overall growth in disposable income was limited to 0.3%.
Following the data, which indicated that price pressures in the U.S. are not accelerating as quickly as expected, U.S. Treasury yields declined, while precious metals and equities recouped some of their recent losses. However, expectations remain that policies to be implemented after President-elect Donald Trump takes office early next year could keep the dollar strong for an extended period.
Combined with solid economic growth, a healthy labor market, and inflation persistently above the 2% target, many economists see no conditions for a weaker dollar in 2025. According to Commodity Futures Trading Commission data, traders have raised their long dollar positions to $28 billion, the most optimistic level since May.
In the meantime, several Fed officials commented positively on the inflation data. However, their overall stance suggests a commitment to a data-dependent approach and a desire to take time to identify the neutral ratrate—thete that neither stimulates nor restrains the economy.
Additionally, New York Fed President John Williams noted that economic projections are beginning to account for Trump's proposed policies and that the current monetary policy stance is well-positioned to address uncertainties in the coming year.
In conclusion, it is clear that policymakers want to see more progress in inflation before moving towards further easing. They also aim to assess Trump's policy measures to gain a clearer view of the economic outlook. While the easing trajectory remains in place, the pace will be more gradual. This supports expectations that the dollar will remain strong.
This week, the economic calendar is extremely quiet due to the Christmas holiday, with no critical data expected. As a result, traders are likely to continue pricing in forward-looking expectations.
Gold at a Crossroads: Navigating Fed Policies and Trump's Agenda
Following the Fed's decision, gold prices, which had dropped by approximately 2.5%, partially recovered after core inflation metrics came in below expectations, fluctuating around $2,630 at the moment.
Gold is on track to end the year with a remarkable 27% gain. Since the start of the year, factors such as major central banks shifting towards easing, safe-haven demand, and central bank purchases have driven gold prices to record highs.
However, the Fed's projection of less easing in 2025 is negative for gold, as it does not pay interest. Many economists anticipate that U.S. yields will remain elevated in the near term, which could diminish gold's appeal. Additionally, a stronger dollar makes gold more expensive for foreign buyers, potentially dampening demand.
As a result, gold's outlook over the medium term indicates potential headwinds. However, expectations shift more favorably from the second quarter of next year, driven by the likelihood that Trump's anticipated policies could elevate U.S. inflation and lower real yields.