Forex News

• Gold extends gains as investors reassess the Fed’s monetary policy path into 2026 following a third rate cut this year.
• A softer US Dollar and persistent geopolitical tensions continue to underpin bullion.
• Technically, XAU/USD eyes record highs after breaking out of a two-week consolidation.

Gold (XAU/USD) extends its advance on Friday as expectations build for further monetary policy easing by the Federal Reserve (Fed) after this week’s interest rate cut. At the time of writing, XAU/USD is trading around $4,340, just shy of its all-time high near $4,381, marked on October 20.

The latest leg higher helped Bullion break out of a two-week consolidation range, as markets continue to reassess the Fed’s policy path into 2026. The shift in sentiment follows Wednesday’s decision to lower borrowing costs by 25 basis points (bps), marking the third rate cut this year.

While the Fed stopped short of offering clear forward guidance, Chair Jerome Powell signalled that near-term rate hikes are unlikely, reiterating the familiar data-dependent stance while highlighting risks on both sides of the Fed’s dual mandate.

The less hawkish outlook than markets had anticipated prompted traders to price in two rate cuts next year, even as the latest dot plot points to just one.

Elsewhere, persistent geopolitical tensions continue to provide steady underlying support for Gold, with XAU/USD on track to post solid weekly gains.

Market movers: Fed outlook, institutional demand and geopolitics drive sentiment

• The Fed’s rate decision was not unanimous, passing on a 9-3 vote. Governor Stephen Miran once again advocated a larger 50-bps cut, while Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid preferred to leave rates unchanged.
• Austan Goolsbee said on Friday that he favoured waiting for more clarity, particularly on inflation, before easing further. Goolsbee added that while he remains optimistic that interest rates can come down meaningfully over the next year, he is cautious about front-loading cuts given the inflation experience of recent years, noting that most incoming data point to stable economic growth and only moderate cooling in the labour market.
• Kansas City Fed President Jeffrey Schmid said he dissented against this week’s rate cut, arguing that not much had changed since the previous meeting, when he also opposed easing. He added that monetary policy is only modestly, if at all, restrictive, and warned policymakers against becoming complacent about inflation credibility.
• Gold is back near record highs, up over 60% year-to-date and on track for its best annual performance since 1979. The rally has been driven by strong central bank demand, robust ETF inflows, a dovish Fed outlook, and persistent geopolitical tensions. Major banks expect the trend to extend into 2026, with Goldman Sachs saying on Wednesday it sees significant upside to its end-2026 Gold price forecast of $4,900 per ounce, while Bank of America expects prices to push toward $5,000 an ounce.
• Structural demand pick-up for Bullion from Indian pension funds, as regulatory reform now allows the National Pension System (NPS) and other pension schemes to allocate a portion of assets to SEBI-regulated Gold and Silver ETFs. This marks the first time Indian pension funds can gain direct exposure to precious metals.
• The Greenback remains under pressure, making Gold cheaper for overseas buyers as markets lean dovish on the Fed. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades near 98.47 after slipping to an eight-week low on Thursday, and is on course for a third weekly decline.
• Geopolitical tensions remain elevated amid slow progress in US-led Russia-Ukraine peace talks in Europe. Ukrainian President Volodymyr Zelensky raised serious concerns over a US proposal to designate the contested Donbas region as a “free economic zone.” US President Donald Trump has voiced frustration with the pace of negotiations, hinting he could skip peace talks in Europe this weekend.

Technical analysis: XAU/USD eyes record highs after breakout

XAU/USD has finally managed to break out of its recent consolidation phase after repeated pullbacks were capped near the $4,250 area, with price action resuming the broader uptrend and trading comfortably above key moving averages on the daily chart.

On the upside, $4,350 emerges as the next near-term resistance, ahead of a potential retest of the all-time high near $4,381. A sustained break above this zone would likely open the door for fresh record highs, provided bullish momentum continues to strengthen.

On the downside, $4,250 now acts as strong initial support. A deeper pullback could find buyers near the 21-day Simple Moving Average (SMA) at $4,168.

Momentum indicators support the constructive outlook. The Relative Strength Index (RSI) is holding above 70, pointing to strong upside momentum, though it also warns of near-term overbought conditions. Meanwhile, the Moving Average Convergence Divergence (MACD) line extends above the Signal line and stands over the zero mark, while the histogram expands positively, suggesting strengthening bullish momentum.

Federal Reserve (Fed) Bank of Philadelphia President Anna Paulson said on Friday that the rate cuts have "taken out some insurance" against job market risks. Speaking at the Delaware State Chamber of Commerce in Wilmington, Paulson stated that the current Fed policy is "somewhat restrictive" and should moderate inflation.

Key Quotes

Fed rate cuts have taken out some insurance against job market risks.

Is more concerned about job risks relative to inflation.

Current Fed policy somewhat restrictive, should moderate inflation.

Inflation too high, job market bending, but not breaking.

Fed will have much more info in hand at January FOMC meeting.

See decent chance inflation will moderate into next year.

Most of 2025 high inflation driven by trade tariffs.

Credibility gives Fed flexibility to respond to economy.

The data on the economy are stale.

If there were a big change in conditions, would expect to hear that from contacts.

Not seeing tariffs translate into widespread price increases.

I think 2% is the right goal for inflation.

The key thing is not the level but price stability.

People and markets believe we are going to get to 2%.

It is really, really important that we bring inflation all the way back to 2%.”

• The Canadian Dollar remains supported as markets digest contrasting signals from the BoC and the Fed.
• The BoC leans toward a prolonged pause, while the Fed delivers another interest rate cut.
• Market focus shifts to incoming data for clues on the next policy move.

The Canadian Dollar (CAD) remains bid against the US Dollar (USD) on Friday, as markets continue to digest this week’s monetary policy decisions from the Bank of Canada (BoC) and the Federal Reserve (Fed).

At the time of writing, USD/CAD is hovering near 1.3760, its lowest level since September 17, with the pair set to post a third straight weekly loss amid broad US Dollar weakness.

The BoC left its policy rate unchanged at 2.25%, in line with expectations, noting that the current setting is “about the right level” given inflation near target and signs of resilience in economic activity.

The steady policy signal reinforced expectations that interest rates are likely to remain unchanged well into 2026, though some analysts are beginning to flag the risk of eventual tightening.

Analysts at the National Bank of Canada (NBC) said they expect rates to be held steady through at least the first half of next year, but have brought forward their forecast for the start of rate hikes to the fourth quarter of 2026, from early 2027 previously.

They noted that a further decline in the unemployment rate alongside persistently firm inflation could prompt earlier tightening, while any deterioration in labour-market conditions or renewed trade uncertainty tied to the 2026 USMCA review could delay hikes into 2027.

Traders now turn their attention to Canada’s Consumer Price Index (CPI) data due on Monday, which could shape expectations for the monetary policy path into 2026.

In contrast, the Federal Reserve lowered interest rates by 25 basis points this week, bringing the target range for the Federal Funds Rate to 3.50%-3.75%. Policymakers acknowledged that risks to both sides of the Fed’s dual mandate remain in play and reiterated that upcoming decisions will be guided by incoming data.

While the guidance avoided committing to a clear easing path, markets viewed the outcome as less hawkish than many had anticipated.

Chicago Fed President Austan Goolsbee, who dissented against this week’s rate cut, said on Friday that he favoured waiting for more clarity, particularly on inflation, before easing further.

Goolsbee noted that while he remains optimistic that interest rates can come down meaningfully over the next year, he is wary of front-loading cuts given the inflation experience of recent years. He added that most incoming data points to stable economic growth, with the labour market showing only moderate signs of cooling.

Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee said on Friday that waiting would have provided the benefit of the updated economic data, and most data show stable economic growth, with the labor market only moderately cooling.

Key takeaways

Goolsbee dissented over the rate cut because he believed the Fed should wait for more information, particularly about inflation.

There is little to suggest the labor market is decaying so fast that the Fed could not have waited until early 2026 to cut rates again.

Inflation has been above target for four and a half years, progress has stalled, and businesses and consumers cite prices as a main concern.

Higher current inflation may have come from tariffs and could prove transitory, but the danger is that it becomes more long-lasting.

Waiting would have been the more prudent course and would not have entailed much additional risk.

Most data show stable economic growth, with the labor market only moderately cooling.

There is still optimism that rates can come down significantly over the next year, but there are concerns about front-loading given the inflation of the last several years.

Can't assume that current inflation will be transitory.

Waiting until Q1 for rate cuts would allow Fed to be assured inflation is coming down.

Measures of job market have been pretty stable.

Shifts in data like monthly payrolls have made it difficult to assess things like breakeven job creation rates.

To have both low hiring and low firing does not suggest a cyclical downturn.

Not hawkish on rates next year, feel optimistic rates can fall this year but uncomfortable front loading looser policy.

Services inflation before the government shutdown was concerning.

There is nothing wrong with the argument that inflation will fall next year but need to be more certain.

Says he is below the median in terms of 2026 rate cuts.

Expect the unemployment rate to be pretty stable.

Prices are one of the main concerns that businesses and consumers have about the economy right now.

People take the Fed job seriously, that is fundamental to its independence.

Vote to reappoint Fed regional presidents took place on a normal schedule but was announced earlier.

The process of reappointing regional bank presidents is "very robust".

The restart of Fed security purchases is technical to assure rate control, not part of monetary policy.

The balance sheet under ample reserves has to grow as the economy does.

Take some comfort in market-based measures of inflation, a source of optimism about the path of price increases.

Drop in inflation should be detectable in the first quarter of the year."

• EUR/GBP remains virtually unchanged around 0.8760 on Friday.
• Stable German inflation and expectations of a prolonged pause by the ECB support sentiment toward the Euro.
• The renewed contraction in UK GDP in October reinforces expectations of monetary easing by the Bank of England.

EUR/GBP trades without a clear direction on Friday, hovering around 0.8760 at the time of writing, with the pair remaining stable despite contrasting macroeconomic developments between the Eurozone and the United Kingdom. Data published in Germany confirms that inflation remains contained, while the UK’s economic trajectory continues to weaken, increasing pressure on the Bank of England (BoE).

In the Eurozone, the Harmonized Index of Consumer Prices (HICP) edged up to 2.6% YoY in November, after 2.3% in October, in line with preliminary estimates. On a monthly basis, prices fell by 0.5%, limiting the impact on the Euro (EUR). This stability reinforces the idea that the European Central Bank (ECB) has reached a balanced stance in its monetary policy. President Christine Lagarde reiterated that the current policy setting “is in a good position”, while Governing Council members François Villeroy de Galhau and Gediminas Simkus said there is no immediate need to cut or raise rates.

In contrast, the Pound Sterling (GBP) comes under renewed pressure following the release of UK Gross Domestic Product (GDP), which contracted by 0.1% in October, missing expectations of a modest expansion. This data contradicts the recent upward revision by the Office for Budget Responsibility, which had lifted its 2025 growth forecast to 1.5%. Investors see this report as another confirmation of the UK economy’s persistent weakness, fueling expectations of a rate cut at next week’s BoE meeting.

Industrial Production offered a mild positive surprise, rising 1.1% in October, though Manufacturing Production slowed to 0.5%, indicating that the sector continues to struggle to regain momentum. In this environment, the fundamental backdrop remains unfavourable for the Pound Sterling, while the Euro benefits from greater monetary stability.

EUR/GBP may therefore remain broadly stable in the short term, but risks appear slightly tilted in favour of the single currency as long as markets anticipate a more accommodative BoE compared with an ECB committed to a prolonged pause.