Forex News

Gold is holding near $4,200/oz as expectations for a December Fed rate cut and a weaker US Dollar (USD) continue to underpin prices, though soft physical demand may cap further gains. Strong official-sector buying and political noise from Italy’s proposal to alter central bank gold ownership add new dynamics to an already firm gold market, HSBC' analysts report.

Softer USD and risk aversion fuel bullion strength

"Gold prices have recently returned to around $4,200 per ounce, underpinned by increased risk aversion and growing expectations of a 25bp rate cut by the Federal Reserve (Fed) at its 9-10 December meeting."

"The recent weakness in the broad USD − reflected by the US Dollar Index (DXY) falling below 99 − has further supported Gold prices, given their typically inverse relationship. However, with markets having largely priced in the anticipated rate cut, any subsequent decline in the USD is expected to be modest. While Gold’s upward momentum remains intact, our precious metals analyst notes that a lack of improvement in physical demand may constrain further near-term gains."

"Meanwhile, official sector demand for Gold remains strong. The World Gold Council reports that central banks purchased a net 53 tonnes of Gold in October, marking the highest monthly increase this year and a 36% rise from September. Nonetheless, potential changes are on the horizon, as the Italian government considers amending the ownership structure of central bank Gold reserves. Previous attempts to transfer these reserves to the Treasury have faced resistance from EU authorities."

Pound Sterling (GBP) is likely to trade in a range between 1.3290 and 1.3360. In the longer run, GBP is expected to continue to rise, potentially to 1.3410, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

GBP is likely to trade in a range between 1.3290 and 1.3360

24-HOUR VIEW: "Last Thursday, GBP rose to 1.3385 before retreating. When GBP was at 1.3325 in the early Asian session on Friday, we highlighted that 'upward pressure has eased, and instead of continuing to rise today, GBP is more likely to trade within a range of 1.3300/1.3365'. However, GBP traded within a narrower range than expected (1.3318/1.3362), closing largely unchanged at 1.3333 (+0.05%). The price action provides no fresh clues, and we continue to expect GBP to trade in a range today, most likely between 1.3290 and 1.3360."

1-3 WEEKS VIEW: "Tracking our positive GBP view since late last month, we indicated last Thursday (04 Dec, spot at 1.3345) that GBP 'is expected to continue to rise, potentially to 1.3410'. Although upward momentum has slowed somewhat, we will maintain our view for now. Overall, only a breach of 1.3265 (‘strong support’ level was previously at 1.3250) would indicate that GBP has moved into a range-trading phase."

A dovish-leaning Fed and upcoming policy shifts abroad could weigh on the US Dollar (USD) into 2026, with key central bank meetings set for this week. While the Fed may resist validating aggressive easing expectations, seasonal softness and uncertainty over future leadership should cap USD upside, ING's FX analyst Chris Turner notes.

Global rate-cut cycles add to mild USD downside

"Assuming that the Federal Reserve stays in dovish mode – we'll find out more about that on Wednesday – a turn in the policy rate cycles overseas should be another factor contributing to a mildly weaker dollar in 2026. On this subject, we'll also get to hear from central bankers in Australia and Canada at their policy rate meetings on Tuesday and Wednesday this week."

"In terms of the US data calendar this week, we've got US JOLTS job opening data tomorrow and the FOMC meeting on Wednesday evening. The Fed could be a positive event risk for the dollar in that it seems hard for the Fed to validate the 90bp of easing priced into Fed Funds futures by early 2027."

"However, the potential formal nomination of Kevin Hassett as Fed Chair over the coming months and the seasonal factors keeping the dollar weak into year-end should limit the dollar's upside. For today, DXY could continue to trade in a tight 98.80-99.20 range."

• AUD/JPY exhibits strength near 103.20 due to continuous outperformance from the Australian Dollar.
• The RBA is expected to hold its OCR steady at 3.6% on Tuesday.
• Revised Japan Q3 GDP figures have shown that the economy contracted at a faster pace.

The AUD/JPY pair demonstrates strength near a fresh 16-month high around 103.20 during the European trading session on Monday. The cross trades firmly as the Australian Dollar (AUD) outperforms its peers ahead of the monetary policy announcement by the Reserve Bank of Australia (RBA) on Tuesday.

Investors are confident that the RBA will hold interest rates steady at 3.6% as inflationary pressures in Australia are proving to be persistent. As the RBA is expected to keep interest rates on hold, the major trigger for the Australian Dollar will be the guidance on the monetary policy outlook.

Traders don’t see the RBA reducing its Official Cash Rate (OCR) in the near term, and are betting on a hike in 2026, following the release of the strong household spending data for October on Thursday, which came in stronger at 1.3% against 0.3% in September.

In addition to expectations for RBA keeping interest rates on hold, upbeat China’s Trade Balance data has also strengthened the Australian Dollar. Earlier in the day, the National Bureau of Statistics of China reported that the trade surplus widened to $111.68 billion from $90.07 billion in October, while it was expected to increase at a moderate pace to versus $100.2 billion.

Meanwhile, the Japanese Yen (JPY) underperforms its peers following the release of the weak Q3 Gross Domestic Product (GDP) data. Revised figures showed that the Japanese economy contracted at a faster pace of 0.6% against the preliminary estimate of 0.4%, a scenario that could dwindle expectations of further interest rate hikes by the Bank of Japan (BoJ).

Euro (EUR) is likely to trade in a range between 1.1625 and 1.1665. In the longer run, upward momentum is starting to slow; a break below 1.1615 would indicate that EUR is not advancing further, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

EUR is likely to trade in a range between 1.1625 and 1.1665

24-HOUR VIEW: "When EUR was at 1.1640 last Friday, we indicated that 'the current price movements are likely part of a range-trading phase', and we expected EUR to 'trade between 1.1625 and 1.1670'. We were not wrong, as EUR traded in a range of 1.1627/1.1671, closing marginally lower by 0.01% at 1.1642. Momentum indicators remain flat, and today, we expect EUR to trade in a range between 1.1625 and 1.1665."

1-3 WEEKS VIEW: "In our most recent narrative from last Thursday (04 Dec, spot at 1.1670), we stated that 'the price action continues to suggest EUR strength'. We also highlighted that 'the level to watch is 1.1695, followed by a firm level at 1.1730'. Since then, EUR has not been able to gain much traction on the upside. Upward momentum is starting to slow, and if EUR breaks below 1.1615 (no change in ‘strong support’ level), it would mean that the advance in EUR that started late last month has come to an end."

• The Pound is trading higher against the Yen with bulls eyeing multi-month highs at 207.35.
  Risk appetite and easing concerns about the UK's fiscal deficit are supporting the Sterling.
• GBP/JPY bulls are testing the top of an ascending triangle pattern.

The Pound has opened the week on a mild positive note, while the Japanese Yen drops across the board amid the positive market mood. The pair is trending higher, after bouncing at 206.20 lows on Friday, with bulls eyeing 17-month highs, at 207.35.

The fundamental context remains pound-supportive. Investors are moderately lenient to risk, and, in the UK, the tax-rising budget released by Chancellor Rachel Reeves last week has soothed concerns about the UK’s fiscal deficit, increasing speculative demand for the Pound.

Technical analysis: GBP/JPY is at the top of an ascending triangle pattern

The pair remains bid in a doleful week opening, with bulls aiming to retest the top of an ascending triangle pattern at the 207.35 area, which has capped upside attempts several times in late November and early December. 

The 4-hour chart shows the pair trading at 207.10 at the time of writing, showing marginal gains on a daily basis. The Moving Average Convergence Divergence (MACD) remains flat around the zero line, reinforcing a neutral tone, while the Relative Strength Index (RSI), at 58.64, is positive without an overbought stretch.

A successful breach of the mentioned 207.35 area clears the path towards the 2024 peak, which coincides with the 127.2% Fibonacci extension of the November 20-26 rally at the 208.15 area. Further up, the 161.8% extension of the same cycle is at 209.15. The triangle’s measured target is at 210.30.

To the downside, the rising trend line from the November 21 low underpins the bias, offering support near 206.00, with horizontal backup at 205.18 (December 1 low) and the mentioned November 21 low, at the 204.30 area.

(The technical analysis of this story was written with the help of an AI tool).

The Eurozone Sentix Investor Confidence Index improves significantly to -6.2 in December from -7.4 in November.

Similarly, the Current Situation sub-index also improved to -16.5 in December, from November’s -17.5.

The Expectations gauge rises sharply to 4.8 in the same period from 3.3 in November.

Market reaction

EUR/USD remains steady around 1.1660 as of writing, despite upbeat Eurozone's sentiment data.

Isabel Schnabel’s remarks on upside growth risks—spanning consumption, investment, and government spending—boosted the Euro (EUR) in early trade. With markets now pricing the next ECB move as a hike, EUR/USD holds a 1.1630-1.1680 range with scope for 1.1700-1.1730 before the Fed meeting, ING's FX analyst Chris Turner notes.

EUR/USD targets 1.17 as hedging costs narrow

"Whisper it, but we have a key ECB official suggesting that eurozone growth risks could be to the upside. The ECB's Isabel Schnabel made these remarks in an interview released this morning, citing that upside surprises could come from three directions: household consumption, private sector investment and government outlays on infrastructure and defense."

"These remarks probably need to be seen in the context of her hawkish background and perhaps as a foil to those at the ECB still favoring one last rate cut. But Schnabel has suggested the ECB could revise up its growth forecasts in its next forecast round on 18 December and has said she's comfortable with markets pricing the next ECB move as a rate hike."

"These comments have helped the euro this morning and stand to narrow US hedging costs for eurozone investors further still. 1.1630-1.1680 is the short-term range, with an outside risk of a push to the 1.1700/1730 before Wednesday's Fed event risk."

Silver prices (XAG/USD) rose on Monday, according to FXStreet data. Silver trades at $58.47 per troy ounce, up 0.16% from the $58.38 it cost on Friday.

Silver prices have increased by 102.38% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 71.98 on Monday, broadly unchanged from 71.99 on Friday.

(An automation tool was used in creating this post.)