The Federal Reserve’s interest rate decision is set to be the major highlight of the week. While the market is anticipating a rate cut, Federal Reserve policymakers are expected to engage in a challenging discussion on this matter, particularly due to ongoing inflation concerns stemming from rising prices and a sluggish job market.
Last week, the Consumer Sentiment Index from the University of Michigan indicated a positive shift, climbing to 53.3 from 51, surpassing expectations. However, this improvement isn’t enough for consumers, who are still troubled by high prices and poor job conditions.
Recent comments from policymakers reveal their uncertainty regarding the next steps.
The market predominantly predicts a 25 basis point reduction, pricing nearly an 85 percent likelihood to a rate cut that has risen from 30 percent previously. Additionally, private sector job data reflects weakness in the labour market, which could factor into a potential rate decrease by the Fed.
Another significant element of this meeting and report will be the discussion of the projected interest rate cuts for 2026. Following the September dot plot, which indicated three possible rate reductions next year, investors are forecasting next year’s cuts to fall between 25 and 75 basis points.
It’s also noteworthy that Fed Chairman Jerome Powell will be replaced, suggesting that future policymaking dynamics may shift dramatically with the new administration. There could be negative repercussions if the Fed chooses to keep interest rates steady. In such a scenario, the immediate fallout would likely see a rise in the value of the US Dollar and a decline in stock prices.
Simultaneously, the market is closely monitoring the outcomes of the Russia-Ukraine negotiations. So far, discussions between US and Russian representatives have reportedly been progressing well.
However, the critical issues of freezing Russian assets and the occupation of Eastern Ukrainian territories remain delicate and require careful handling. Outcomes, whether agreements or disagreements, could significantly influence global markets, particularly impacting gold and oil prices.
While, because of weaker Q3 GDP figures and following three rate cuts, the Reserve Bank of Australia (RBA) is anticipated to maintain its policy rate unchanged during its upcoming meeting on Tuesday due to rising inflation concerns.
On Wednesday, after reducing its interest rate by 100 basis points earlier this year, the Bank of Canada (BOC) is expected to hold its current rate steady.
On Thursday, the Swiss National Bank (SNB) is anticipated to keep its interest rate steady. A trade agreement has been reached between the United States and Switzerland that will decrease the US tariff rate from 39 percent to 15 percent, which will help ease inflationary pressures.
There remains some uncertainty in gold prices, which are currently trading within a manageable range. Two significant factors that could lead to increased volatility for gold are the outcome of discussions between Russia and Ukraine, as well as the Federal Reserve’s decision regarding interest rates.
Key levels to monitor include USD 4298 on the upside and USD 3975 on the downside, particularly if USD 4040 is breached.
It’s also essential to recognize that this is the final month of the year, which typically sees many traders taking vacations and banks and financial institutions finalizing their accounts. This can lead to liquidity issues, increasing the risk of unexpected market volatility.
Looking at the US economic landscape, the week from Monday to Thursday will be largely influenced by interest rate announcements from central banks in Australia, Canada, the USA, and Switzerland. Additionally, on Tuesday, the US JOLTS job openings report will be released, followed by the US weekly jobless claims on Thursday.
WEEKLY OUTLOOK — DEC 8-12
GOLD @ USD 4197— Gold is set for another predictable week. Key levels to monitor include USD 4120 on the downside, a drop below this point could risk a decline to USD 4060. Conversely, surpassing USD 4290 on the upside could pave the way for a rise to USD 4370.
EURO @ 1.1643— The outlook is positive. Support at 1.1538 is expected to remain intact. If the price breaks above 1.1750, it may lead to a rise towards 1.1815. If not, the next support level is 1.1480.
GBP @ 1.3331— Pound Sterling is projected to remain strong, likely maintaining levels between 1.3220-30. If it breaks above 1.3465, it could rise to 1.3520. If not, it may drop to 1.3190.
JPY@ 155.35— The $/YEN currency pair finds support at 154.02 and again at 153.50. The US Dollar is likely to stay under pressure as long as it remains below 156.95, or potentially 157.50.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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