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US dollar widens gains as treasury yields bounce higher
The US dollar rose in European trade on Friday against a basket of major rivals, expanding gains for the sixth straight session and hitting two-week highs, and about to mark the second weekly profit in a row, as US 10-year treasury yields rebounded.
The gains come despite the increasing odds of a Federal Reserve 0.25% interest rate cut next week, which would be the third rate cut this year.
The Index
The dollar index rose 0.2% to 107.19, the highest since November 26, with a session-low at 106.94.
On Thursday, the index rose 0.4%, the fifth profit in a row as investors buy up the greenback.
Weekly Trades
The dollar index is up over 1.15% so far this week, about to mark the second weekly profit in a row.
US Yields
US 10-year treasury yields rose 0.3% on Thursday, expanding gains for the fifth straight session, and hitting a two-week high at 4.342%.
The modest gains come as US 10–year treasury yields rebounded as well on speculation the Federal Reserve won’t enact large interest rate cuts in 2025.
US Rates
The recent US consumer prices data matched expectations, and paved the way for the Federal Reserve to go ahead with a rate cut next week.
According to the Fedwatch tool, the odds of a Fed 0.25% rate cut next week rose to 98%.
Gold backs off five-week high under dollar pressure
Gold prices fell in European trade on Friday on track for the second loss in a row, moving away from five-week highs on active profit-taking, and under pressure from the US dollar’s advance against main rivals.
Despite the losses, gold is still heading for a weekly profit on the strong odds of a US interest rate cut next week, and amid hopes for higher actual demand in China.
The Price
Gold prices fell 0.35% today to $2,671 an ounce, with a session-high at $2692.
On Thursday, gold prices lost 1.4%, the first loss in five days on profit-taking away from a five-week high at $2726.
The Dollar
The dollar index rose 0.2% on Friday, expanding gains for the sixth straight session and hitting a two-week high at 107.19 against a basket of major rivals.
A stronger dollar makes greenback-denominated gold futures costlier to holders of other currencies.
The modest gains come as US 10–year treasury yields rebounded as well on speculation the Federal Reserve won’t enact large interest rate cuts in 2025.
Weekly Trades
Gold prices are up 1.5% so far this week, on track for the first weekly profit in three weeks amid strong haven demand.
US Rates
The recent US consumer prices data matched expectations, and paved the way for the Federal Reserve to go ahead with a rate cut next week.
According to the Fedwatch tool, the odds of a Fed 0.25% rate cut next week rose to 98%.
Chinese Demand
Chinese authorities announced the adoption of a fiscal policy more focused on stimulating and qualitative easing to boost GDP growth, which could help improve demand on precious metals.
Media reports also indicated that the People’s Bank of China had returned to purchasing gold in November after a six-month hiatus. China is the world’s largest actual buyer of gold.
SPDR
Gold holdings at the SPDR Gold Trust fell 4.88 tons yesterday to a total of 868.50 tons, the lowest since November 14.
Euro skids to two-week trough after ECB decision
The euro skidded in European trade on Friday to a two-week trough against the US dollar, sharpening losses for the sixth straight session, and about to mark the second weekly loss in a row as the US-European interest rate gap widened after the European Central Bank cut interest rates for the fourth time this year.
The ECB backed off its strict position on policies and is clearly now leaning towards monetary easing to support the economy.
Following the meeting, the odds of an ECB interest rate cut in January surged, with analysts expecting the ECB mainline interest rate to hit 1.75% by the end of 2025.
The Price
The EUR/USD fell 0.15% to $1.0453, the lowest since November 26, with a session-high at $1.0481.
The pair closed down 0.3% on Thursday, the fifth loss in a row following the European Central Bank’s policy meeting.
Weekly Trades
The EUR/USD pair is down 1.1% so far this week, about to mark the second weekly loss in a row.
The ECB
The European Central Bank voted to cut interest rates by 25 basis points today to 3.15%, the lowest since February 2023, the fourth ECB interest rate cut this year.
It said the decision to cut interest rates is based on updated assessment of inflation forecasts and inflation dynamics, and asserted its reliance on data at every meeting to decide on policies.
The ECB clearly hinted at more interest rate cuts in the short term, while expecting core inflation to stabilize at 2%, matching official targets.
Lagarde
ECB President Christine Lagarde said the decision to cut interest rates for the fourth time this year comes as inflationary pressures receded and economic activities softened.
She said there were arguments for a 0.5% rate cut, but eventually all settled on a 0.25% rate cut.
Lagarde added that neutral interest rates will be discussed when they’re approached.
European Rates
Following the meeting, the odds of a 0.25% ECB interest rate cut in January rose from 35% to 55%.
Now markets expect the ECB interest rate to decline to 1.75% by the end of 2025.
Interest Rate Gap
The US-Eurozone interest rate gap rose to 160 basis points this week, in turn putting more pressure on the euro against the dollar.
