Last week, significant economic data from the US was released after being delayed for several months because of the government shutdown.
The report indicated an increase in jobs. However, a concerning aspect was the substantial decline in government employment.
While the job figures may have been affected by the prolonged gap, the unemployment statistics clearly illustrated a decline in the latter half of the year.
Recent comments from Federal Reserve officials highlight the varying opinions on the policy outlook, which is to be expected.
The release of the consumer price index (CPI) provides clarity behind these differing opinions.
Last month’s CPI data revealed that core annual inflation decreased from 3 percent to 2.6 percent. The data might be distorted due to the shutdown, even as inflationary pressures continued to increase.
Consequently, some Fed officials are advocating for a hawkish approach out of concern that inflation might rise, while others are pushing for a gradual rate cut, with some calling for a more significant reduction. Nonetheless, despite these differing opinions, the overall economic picture is unlikely to shift dramatically, as the job market remains stable and inflation is slowly easing.
This has led the market to anticipate a moderate rate cut, expected between March and June.
Meanwhile, as mentioned in my post last week, the European Central Bank maintained its deposit rate at 2 percent, while raising the projected inflation rate in the Eurozone.
On the other hand, the Bank of England, in a closely divided vote of 5-4, reduced its rate by 25 basis points to 3.75 percent. The dissenting voters expressed concerns over “prolonged persistent inflation”, fearing that inflationary pressures may not diminish soon, which influenced their decision to keep rates steady.
Lastly, as expected, the Bank of Japan (BOJ) raised its policy rate by 25 basis points to 0.75 percent. In its statement, the BOJ noted that despite the interest rate hike, financial conditions remain very accommodative, with real interest rates being “significantly negative.” Regarding future policy, the BOJ governor stated that they would evaluate how the economy and prices respond to the previous adjustments.
However, even with the increase in the policy rate, the Yen failed to take advantage of the rise in rates. This is probably because the BOJ hasn’t offered any future guidance that might maintain pressure on the Japanese currency before it adjusts.
Starting next week and continuing through the first week of January, the market will enter a holiday season, leading to fewer traders and lower trading volumes.
However, this does not guarantee a quieter market, given the tensions between the US and Venezuela, other geopolitical issues, and unresolved global economic conflicts.
In thin market conditions, liquidity becomes crucial. As a result, any panic situations could drive gold prices higher, and developments in artificial intelligence (AI) may disrupt the smooth workings of the Wall Street. Additionally, the announcement of US data in a thin market may lead to some volatility. The third-quarter GDP figures are set to be released on Tuesday, followed by Durable Goods Orders and Consumer Confidence data, and Initial Jobless Claims on Wednesday.
This week, trading volumes are expected to be low and liquidity will be limited as many traders are away for the Christmas holiday season.
The potential for volatility in gold prices is heightened due to the rising tensions between the US and Venezuela. Another factor that may affect gold prices is weaker US economic data, which could bolster gold. Conversely, if the US data comes in stronger than anticipated, it could dampen sentiment for rate cuts, pushing prices lower.
Nevertheless, I anticipate that buyers will still step in at lower prices, keeping demand relatively strong.
WEEKLY OUTLOOK — DEC 22-26
GOLD @ USD 4338.50— This week, the market is anticipated to be heavily influenced by volatility.
For gold to rise, it must surpass the USD 4372-78 range in order to reach USD 4390-95 or higher. Conversely, it needs to decisively drop below USD 4268-73 to test USD 4240 level. There will likely be buying interest during dips.
EURO @ 1.1710— The key levels to monitor are the support zone at 1.1620-30, which is expected to hold. A break above 1.1810 could set the stage for a move towards 1.1850.
However, breaking below the support level could lead to a drop to 1.1550.
GBP @ 1.3379— Pound Sterling has support in the range of 1.3275-85, which is expected to hold. However, if Cable cannot surpass 1.3480, the potential for a correction will continue to exist.
JPY @ 157.76— The US$/Yen pair is expected to hold 156.65-75 to achieve further gains. However, it must surpass 158.40 to reach the levels of 158.90-00, which appears to be quite challenging. If that doesn’t happen, the support level is at 155.80.
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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