Gold prices fell in European trade on Monday on track for the second loss in a row amid thin holiday trading, and under pressure from the stronger dollar.

An active and more powerful dollar is deriving strength from the Federal Reserve’s latest bullish monetary policy outlook for 2025.

Prices

Gold prices fell 0.45% today to $2609 an ounce, with a session-high at $2628.

On Friday, gold lost 0.5%, the first loss in three days on higher US yields.

The precious metal lost 0.1% last week, the second weekly loss in a row on thin Christmas trading.

US Dollar

The dollar index rose 0.1% on Monday, resuming gains and about to hit two-year highs against a basket of major rivals.

Thursday data showed US unemployment claims hit a month low last week, indicating continued strength and resilience in the labor market, which would likely convince the Federal Reserve to hold interest rates steady for an extended duration in 2025.

According to the Fedwatch tool, the odds of a 0.25% US interest rate cut in January stood at 11%, with investors waiting for crucial US labor data next week to gather more clues.

SPDR

Gold holdings at the SPDR Gold Trust were flat on Friday at 872.80 tons.

Euro fell in European trade on Monday against a basket of major rivals, moving in a negative zone against the US dollar amid thin holiday trading. 

The decline comes amid concerns about a wider US-eurozone interest rate gap following bearish remarks from ECB President Christine Lagarde, which boosted the odds of an ECB interest rate cut in January.

The Price

The EUR/USD fell 0.15% to $1.0409, with a session-high at $1.0435.

On Friday, the euro rose 0.1% against the dollar, the second profit in a row.

The pair lost 0.1% last week, the fourth weekly loss in a row.

Lagarde

European Central Bank President Christine Lagarde said the eurozone is approaching its medium-term inflation target according to an interview with the Financial Times.

In earlier remarks, Lagarde said the ECB will cut interest rates more aggressively if inflation continues to slow down towards 2%.

She said that the eurozone is very much approaching the stage where the ECB  can announce the achievement of the 2% inflation target,

European Rates

Following the remarks, the odds of a 0.25% ECB interest rate hike rose from 55% to 65%.

Markets are betting the ECB will cut interest rates by 1.75% throughout 2025, while waiting for important eurozone growth, inflation, and unemployment data to gather more clues.

 US Rates

According to the Fedwatch tool, the odds of a 0.25% US interest rate cut in January stood at 11%, with investors waiting for crucial US labor data next week to gather more clues.

Rate Gap

The eurozone-US interest rate gap is now standing at 135 basis points in favor of the US, and will likely expand to 160 basis points in January, in turn boosting the greenback.

The yen fell in Asian trade on Monday against a basket of major rivals, resuming losses against the US dollar and approaching five-month lows once more after the Bank of Japan’s warnings and divisions among policymakers on the prospect of raising interest rates in January.

The price is also pressured by concerns about the interest rate gap between Japan and the US following the Federal Reserve’s latest policy meeting, which was more bullish than expected.

The Price 

The USD/JPY rose 0.15% today to 157.99 yen per dollar, with a session-low at 157.65.

The yen rose 0.8% on Friday against the dollar amid attempts to recover from five-month lows at 158.08.

The yen gained ground back then following strong Japanese inflation and retail sales data. 

The yen also lost over 0.9% last week against the dollar, the fourth weekly loss in a row as US treasury yields gained ground.

BOJ

The Bank of Japan’s latest meeting minutes showed divisions, with some policymakers more confident about raising interest rates in the short term, while others are still cautious due to uncertainty about wages and Trump policies.

Bank of Japan Kazuo Ueda said last week the bank expects the economy to approach its 2% inflation target sustainably next year.

The current odds of a BOJ 0.25% interest rate hike in January stood at 55%, with investors now waiting for more inflation and labor data to gather more clues.

US Rates

According to the Fedwatch tool, the odds of a 0.25% US interest rate cut in January stood at 11%, with investors waiting for crucial US labor data next week to gather more clues.

Yen Outlook

Sydney Bank’s analysts said in a memo that the upward USD/JPY trend might be overdone, which could pave the way to a correction.

They also pointed to the possibility of an intervention by Japanese authorities in the case of a rapid spike in the USD/JPY pair.

Most commodity currencies fell on Friday amid calm trading as investors gear up for the New Year holiday.

A spate of crucial events will take place in 2025, first of which is the inauguration of US President-elect Donald Trump and its expected positive impact on the crypto market. 

Earlier government data showed the US trade deficit grew by 5% to $102.9 billion in November from $98.3 billion in October, which could prompt US President-elect Donald Trump to go ahead with his tariffs to reduce the deficit. 

Investors are now preparing for the New Year holiday, which would entail a reorganization of their investment portfolios, and maybe liquidating some assets.

The Dollar

The dollar index fell 0.1% as of 20:37 GMT to 108.03, with a session-high at 108.2, and a low at 107.8.

Loonie

The Canadian dollar fell 0.1% against its US counterpart as of 20:59 GMT to $0.6937.

Aussie 

The Australian dollar inched down 0.1% against its US counterpart to 0.6215.