CFD Markets News and Forecasts — 02-01-2025

• GBP/USD soured on Thursday, dipping below 1.2400 for the first time since April.
• January just started but Cable is already on pace to end the month on a sour note.
• US PMI figures on Friday will round out the week’s economic calendar.

GBP/USD struck a soft chord on Thursday, dumping over one percent on the outset of the new trading season and piercing through the 1.2400 handle for the first time in almost ten months. Market volumes remain thin following the midweek New Year’s holiday, but the orders coming through are on a decidedly risk-off stance.

Economic data on the UK side remains strictly low-tier through the remainder of the first trading week of 2025, leaving Cable traders to grapple with a fresh update in US Purchasing Managers Index (PMI) figures slated for Friday. UK Money Supply and Mortgage Approvals are due to release early Friday as well, but the low-impact figures are unlikely to move the markets.

US ISM Manufacturing PMI survey results for December are expected to hold steady, forecast to print at a contractionary 48.4, in line with the preliminary reading. Despite a slight uptick MoM, US businesses continue to have a tepid outlook on activity in the first quarter of 2025 as domestic demand cools off.

The key takeaway for Cable traders will be the rate differential through the first half of 2025. The Federal Reserve (Fed) is slated to deliver far fewer rates cuts through the year than previously expected. The Fed itself only expects to deliver a total of two 25 bps rate trims through 2025, as noted in the US central bank’s Summary of Economic Projections (SEP) in December.

GBP/USD price forecast

GBP/USD took a fresh leg lower, falling back below 1.2400 and the pair is poised for a further plunge back into the 1.2300 handle. The 50-day Exponential Moving Average (EMA) is accelerating into the bearish side below 1.2700 after crossing through the long-run 200-day EMA near 1.2780, which will put further downside pressure on price action in the near term.

GBP/USD daily chart

• Gold price trades flat around $2,660 in Friday’s early Asian session.
• Safe-haven demand and buying by global central banks lift the Gold price. 
• The expectation of a slower pace of the US interest rate reduction might cap the upside for the yellow metal.

The Gold price (XAU/USD) consolidates its gains near $2,660 after reaching a two-week high during the early Asian session on Friday. The safe-haven flows amid the geopolitical tensions provide some support to the precious metal. The US ISM Manufacturing Purchasing Managers Index (PMI) for December will take center stage later on Friday. Also, the Richmond Fed President Thomas Barkin is scheduled to speak.

Russia carried out a drone attack on Kyiv early Wednesday, causing damage in two districts, while Israel targeted a Gaza City neighbourhood, per Reuters. Investors will closely monitor the development surrounding geopolitical risks. Any signs of escalating tensions in the Middle East and Russia-Ukraine could boost the Gold price, a traditional safe-haven asset. 

Central bank purchasing activities could contribute to the yellow metal’s upside. Global central banks bought 694 tonnes of gold during the first nine months of 2024. “We think central bank interest will be a strong base for the buying next year,” noted Henrik Marx, global head of trading at Heraeus Precious Metals, which expected that gold could reach highs of $2,950 per troy ounce in 2025. 

On the other hand, the slower pace of further rate cuts by the US Federal Reserve (Fed) might weigh on the non-yielding asset. The US central bank decided to lower the interest rates in December but signalled that borrowing costs will fall more slowly than previously expected this year. 

• AUD/USD continues to keep a tight grip on 0.6200.
• Market sentiment drifted in favor of safe havens to start 2025.
• Aussie traders await further hints from RBA on policy direction before picking a side.

AUD/USD tried and failed to spark a bull run during the first trading session of 2025, rising on thin volumes before collapsing back into the 0.6200 handle in the later hours of the day. A broad-market push into the safe haven Greenback kept the Aussie pair on the defensive, and the AUD is mired in congestion on the weak side of two-year lows.

The economic data calendar is largely dark on the Antipoodean side for the rest of the week, leaving investors to grapple with US Purchasing Managers Index (PMI) figures due on Friday and a cloudy picture on the Aussie’s interest rate differential outlook.

The Federal Reserve (Fed) is poised to make fewer interest rate cuts through 2025 than previously expected, keeping the US Dollar well-bid across the board alongside a general malaise that has struck market participants in recent months. Market flows are still constrained by the New Year’s holidays that shuttered markets during the midweek market session, but a wobbly stance to fresh volumes at the outset of the new trading season bode poorly for near-term gains for the Aussie.

US ISM Manufacturing PMI survey results on Friday are expected to hold flat at a contractionary 48.2.

AUD/USD price forecast

AUD/USD bulls will be look for a fresh breakout to the topside in the coming days as bids appear to be pumping the brakes on further declines. However, a fresh round of short-selling isn’t entirely off the table, especially if the bottom falls out of near-term price action and sends bids below last week’s floor set near 0.6180.

AUD/USD daily chart

The US Dollar rose to the top of the forex pile on the first day of trading in 2025 as broader markets keep one foot firmly planted in the safe haven currency. Traders may not be the biggest fans of the US Dollar in policy terms, but the USD is still the de facto winner by default amid a global backdrop of wobbly economic conditions.

Here’s what you need to know heading into Friday, January 3

The US Dollar Index (DXY) rallied hard to celebrate the kickoff of the 2025 trading season, rising roughly eight-tenths of one percent and tapping the 109.50 level for the first time since since November of 2022. The only meaningful data of note on Friday’s economic calendar is US ISM Manufacturing Purchasing Managers Index (PMI) survey results, which are expected to hold steady at a contractionary 48.4 for December. A better-than-expected print in weekly US Initial Jobless Claims also helped provide macro support flows in the Greenback.

EUR/USD is already down over 1% in January, tumbling to 1.0250 and slipping into two-year lows for the first trading day of the new year. Hopes for the Euro remain tepid and investors broadly expect the interest rate differential between the EUR and the US Dollar to continue increasing through the first half of 2025. Mid-tier German unemployment figures are due early Friday.

GBP/USD stumbled on Thursday, falling 1.15% on the day and cleanly breaking through the 1.2400 handle, hitting a nine-month low in the process. Cable is set to play second fiddle to other, more important market-moving figures with the UK largely absent from the economic calendar over the next week.

AUD/USD continues to hold on the low end with price action grappling with the 0.6200 region as the new trading year gets underway. The Aussie looked for a technical recovery on the day, but broad-market flows into the Greenback kept AUD/USD pinned near 27-month lows.

USD/JPY is headed back toward familiar highs near 158.00 after an intraday recovery on Thursday. The Dollar-Yen pairing initially opened up 2025’s trading with a downside push, but the US Dollar’s firm bidding strength from across the wider market helped to reverse course and keep USD/JPY near six-month highs.

• The Canadian Dollar (CAD) remained swamped against the US Dollar on Thursday.
• Canadian PMI data from December beat expectations but failed to spark a Loonie rally.
• US PMI data on Friday will be the figure to beat for a risk appetite upswing.

The Canadian Dollar (CAD) remained stuck on the low side against the Greenback on Thursday, with Loonie traders kicking off the new year in a tepid stance. After shedding nearly eight percent top-to-bottom through the last quarter of 2024, the Loonie is struggling to find a technical recovery as market expectations weigh on the CAD.

Canadian Purchasing Managers Index (PMI) survey results from December beat the street, ticking higher when median market forecasts expected a downturn, but the mid-tier figure was unable to spark a relief rally in the battered Loonie. Markets are churning as investors warm up for the 2025 trading season, and overall market volumes remain tight following the midweek New Year’s holiday on both sides of the 49th parallel.

Daily digest market movers: Loonie holds on the low side as new year kicks off

• Canadian Manufacturing PMI survey for December climbed to 52.2, beating the forecast decline to 51.9 from the previous 52.0.
• Despite the data beat, the Loonie remains underbid near multi-year lows.
• US Initial Jobless Claims cooled to 221K for the week ended December 27, undercutting the forecast uptick to 222K from the previous week’s 220K, helping to support the US Dollar.
• Canadian data is wrapped up for the week.
• US ISM PMI figures are due on Friday to round out the trading week, expected to hold flat in December at a contractionary 48.4.

Canadian Dollar price forecast: Loonie stuck waiting for technical correction

The Canadian Dollar remains in a firmly bearish technical stance heading into 2025, with the Loonie stuck near multi-year lows against the US Dollar. The USD/CAD chart continues to grind through chart paper near 1.4400, keeping price action swamped near the pair’s highest non-pandemic prices since 2016.

One-sided bearish action in the Loonie has kept USD/CAD bolstered into highs in conjunction with a broad-market rally in the Greenback, and CAD bidders are struggling to find their feet. However, failure to continue pushing higher from here could give Loonie bulls a fresh spark to turn bids around and force USD/CAD back down to the 50-day Exponential Moving Average (EMA) near 1.4135.

USD/CAD daily chart

• Tepid Chinese data weighed on the market’s mood at the beginning of the day.
• Expectations for higher US Treasury yields undermine demand for the JPY.
• USD/JPY trades near the multi-month high posted in December and aims to break higher.

The USD/JPY pair traded as high as 157.84 on Thursday, holding not far from the December multi-month high of 158.07 by the end of the day. Market participants kept the focus on US political uncertainty as former President Donald Trump gears up to retake office while geopolitical tensions in the Middle East continue.

The Japanese yen suffered from mounting speculation that the upcoming Trump presidency will keep inflationary pressures up, resulting in the Federal Reserve keeping interest rates higher for longer. In its December statement, the US Central Bank has already hinted at just two potential rate cuts this year, halving the four cuts foreseen three months previously. Expectations of higher Treasury yields maintained the Greenback on the winning side.

Tepid Chinese data released at the beginning of the day spurred the sour mood. The country’s December Caixin Manufacturing PMI was confirmed at 50.5, down from the previous 51.7 and missing the 51.7 expected by market players.

USD/JPY Technical Outlook

USD/JPY posted a higher high and a higher low on a daily basis, supporting a bullish continuation, particularly if the pair overcomes the December high of 157.92 (December 20). Gains beyond the latter expose the weekly top of 158.85 (July 16). Further up, the 2024 peak of 161.95 (July 3) comes before the round level of 162.00.  The initial support lies at the aforementioned intraday low, followed by the key 200-day SMA at 152.29, which precedes the December low of 148.63 (December 3) and the weekly low of 141.64 (September 30). If this level is breached, the market may fall to the 2024 bottom of 139.57 (September 16).  In the 4-hour chart, the RSI aims north at around 56, indicating additional gains are likely in the near term.

• The Dow Jones cycled near familiar levels on the first trading day of 2025.
• Tepid intraday flows crimp hopes for a ‘Santa Clause rally’.
• Initial Jobless Claims improved, but not enough to spark a firm risk-on bid.

The Dow Jones Industrial Average (DJIA) fizzled on Thursday, kicking off the 2025 trading year with a flat performance and churning chart paper near 42,500. Equities were middling overall during the US market session, with early gains reversing through the day.

The first week of 2025 remains thin on the economic calendar overall, though US ISM Manufacturing Purchasing Managers Index (PMI) survey results are due on Friday. US Initial Jobless Claims rose 211K through the week ended December 27, below the forecast uptick to 222K from the previous week’s revised print of 220K.

Dow Jones news

Roughly a third of the Dow Jones’ constituent stocks are in the green on Thursday, with Nvidia (NVDA) rebounding 1.8% after a near-term dip and rising toward $137 per share. Despite the upswing in 2024’s tech rally darling, concentrated losses in other market favorites including Boeing (BA) and Apple (AAPL) are keeping the DJIA hobbled for the new year, with both companies falling 3.5% and 3%, respectively. 

Dow Jones price forecast

The Dow’s mixed performance on Thursday has chalked a wide range into the intraday chart with the major equity index starting the day with a 300-point gain before reversing course and backsliding to a -300 loss. The DJIA peaked just north of 42,800 before falling back below 42,250.

Bearish flows from the tail-end of 2024 are continuing into the new year, keeping the Dow capped below the 50-day Exponential Moving Average (EMA) which is rolling over into a bearish stance below 43,270. If bearish momentum accelerates, it’ll put the DJIA on pace for a fresh challenge of the 200-day EMA near 42,120.

Dow Jones daily chart

• UK manufacturing output contracted by more than anticipated in December.
• Market players buy the Greenback as mounting uncertainty weighs.
• GBP/USD pressures fresh multi-month lows with a firmly bearish stance.

The US Dollar (USD) resumed its advance after the New Year holiday, challenging multi-month highs against European rivals in the American session. The GBP/USD pair traded as low as 1.2351, bouncing just modestly from the level as the dismal mood prevails.

The Pound Sterling (GBP) fell following the release of the December United Kingdom (UK) Manufacturing Purchasing Managers’ Index (PMI), as the final version resulted at 47, below the previous estimate of 47.3, also missing expectations of a similar reading.

The faster-than-anticipated contraction in manufacturing output was attributed to “destocking at clients, subdued market confidence and operational restructuring in response to forthcoming legislative changes hit output and demand and reinforced ongoing efforts to achieve cost efficiencies,” according to the S&P Global report.

Meanwhile, financial markets are in risk-averse mode. Concerns about central banks’ hawkish shifts coupled with geopolitical tensions push speculative interest into safety.

The UK will publish minor money-related data on Friday, which usually has no relevant impact on GBP. The United States (US) will release the December ISM Manufacturing PMI, foreseen stable at 48.4. A  better-than-anticipated reading should provide additional support to the USD.

GBP/USD Technical Outlook

The GBP/USD pair trades at around 1.2370 without signs of changing course in the near term. The pair has fallen for a third consecutive trading day, and once the aforementioned intraday low gives up, the 2024 low at 1.2298 comes as the next relevant support level and a potential bearish target. A break below the latter exposes the 1.2200 threshold.

Potential GBP/USD gains would likely be corrective, with the initial resistance coming at around the 1.2400 area. December 20 low at 1.2474, is the next level to watch. 

• EUR/USD shed another full percent as Euro fears simmer.
• European Manufacturing PMI missed the mark, implying steepening contraction expectations.
• ECB policies are expected to diverge steeply from the Fed this year.

EUR/USD dumped another full percentage point on Thursday, kicking off 2025 with its lowest prices in two years. The Euro fell below 1.0250 against the Greenback since November of 2022 and putting Fiber on pace to close for a fourth straight month in the red if things don’t improve in January.

Pan-European Manufacturing Purchasing Managers Index (PMI) survey results fell slightly in December, ticking down to 45.1 versus the expected hold at 45.2. While the data itself had a relatively low impact, it helped to highlight the increasing likelihood that the European Central Bank (ECB) would accelerate rate cuts to bolster the European economy, even as petrol prices hit their own two-year highs.

Coupled with a Federal Reserve (Fed) that is set to cut rates slower than expected, the interest rate divergence underpinning EUR/USD is set to widen dramatically in the coming months. Some analysts expect the Euro to return to parity against the US Dollar sometime in the next 12 months. 

EUR/USD price forecast

EUR/USD is down 8.82% top-to-bottom from September’s peak bids just above the 1.1200 handle, though short-sellers remain unable to pierce 1.0200 for now. A bearish divergence on the Moving Average Convergence-Divergence (MACD) indicator is getting hard to ignore, implying further technical losses on the horizon.

Fiber bids are getting pushed further down by a descending 50-day Exponential Moving Average (EMA) falling into 1.0550. If bidders are able to stage a comeback beyond this point, the 200-day EMA will be waiting just above at 1.0760.

EUR/USD daily chart

• Gold price gains to near $2,650 as investors expect heightened global uncertainty under Trump’s administration.
• US Trump is expected to raise import tariffs and lower taxes after joining the White House.
• The US Dollar refreshes two-year higher on lower Initial Jobless Claims in the week ending Dec 27.

Gold price (XAU/USD) extends intraday gains to near $2,650 in the opening North American session on Thursday after the New Year holiday. The precious metal strengthens as its safe-haven appeal as improved, with investors focusing on President-elect Donald Trump taking administration on January 20.

Expected incoming policies from Trump, such as higher import tariffs and lower taxes, will be beneficiaries of the Gold. Higher import tariffs would lead to a potential global trade war and lower taxes will boost inflationary pressures in the United States (US). Gold tends to perform better amid economic uncertainty as a safe-haven bet and higher price pressures, given that investors use the precious metal as a hedge against inflation.

10-year US Treasury yields decline to near 4.54% at the start of the year as the rally stalls. Generally, lower yields on interest-bearing assets result in lower opportunity costs for non-yielding assets, such as Gold, and make them an attractive bet.

Meanwhile, the US Dollar (USD) also gains sharply as investors expect high inflation under Trump’s administration will force the Federal reserve (Fed) to adopt a moderate policy-easing approach. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh two-year high at 108.90.

On the economic front, fewer US Initial Jobless Claims for the week ending December 27 have also strengthened the US Dollar. The Department of Labour reported that individuals claiming jobless benefits for the first time were 211K, lower than estimates of 222K and the former release of 220K.

Gold technical analysis

Gold price trades in a Symmetrical Triangle chart formation on a daily timeframe, which exhibits a sharp volatility contraction. The 20-day Exponential Moving Average (EMA) near $2,630 broadly overlaps Gold’s price, suggesting a sideways trend.

The Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating indecisiveness among market participants.

Looking up, the Gold price would strengthen after a decisive break above the December high of $2,726.00. On the contrary, bears would strengthen if the asset breaks below the November low around $2,537.00.

Gold daily chart

• USD/JPY extends recovery as US Initial Jobless Claims for the week ending Dec 27 came in lower-than-expected.
• The Fed is expected to reduce interest rates gradually this year as officials are confident over US economic outlook.
• Japan Kato warned about intervention against excessive FX moves.

The USD/JPY pair bounces back from the intraday low of 156.43 in the North American session on Thursday. The asset recovers as the US Dollar (USD) posts a fresh two-year high, with the US Dollar Index (DXY) rising above 108.80, as United States (US) Initial Jobless Claims for the week ending December 27 have come in lower-than-projected.

The Department of Labour reported that individuals claiming jobless benefits for the first time were 211K, lower than estimates of 222K and the former release of 220K, upwardly revised from 216K.

The Greenback was already performing strongly on expectations that the Federal Reserve (Fed) will reduce interest rates gradually this year.

The pace of interest rate cut by the Fed in 2024 was slightly aggressive as policymakers were focused on improving labor market conditions than lowering price pressures. In the process, the Fed reduced its key borrowing rates by 100 basis points (bps) in last three monetary policy meetings.

For this year, Fed officials have guided fewer interest rate cuts as they are upbeat on the United States (US) economic outlook. The latest dot plot showed that policymakers collectively see Federal Funds rate heading to 3.9% by the year-end.

Meanwhile, the Japanese Yen (JPY) performs strongly against its major peers on Thursday amid worries that Japanese administration could intervene in the FX domain against excessive foreign exchange moves. Japan Finance Minister Katsunobu Kato said last week that authorities are watching FX moves closely and will act to stabilize faltering Yen.

• Initial Jobless Claims in the US declined by 9,000 in the week ending December 28.
• US Dollar Index clings to strong gains above 108.50 after the data.

There were 211,000 initial jobless claims in the week ending December 28, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 220,000 and came in better than the market expectation of 222,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1.2% and the 4-week moving average stood at 223,250, a decrease of 3,500 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending December 21 was 1,844,000, a decrease of 52,000 from the previous week's revised level," the DOL noted in its press release.

Market reaction

The US Dollar Index continues to edge higher and was last seen trading at its highest level since November 2022 at 108.85, rising 0.35% on the day.

• USD/CAD climbs above 1.4400 as the US Dollar refreshes two-year high.
• The Fed is expected to follow a moderate rate-cut cycle this year.
• Investors await the US ISM Manufacturing PMI data for December.

The USD/CAD pair rises to near 1.4420 in Thursday’s European session. The Loonie pair gains as the US Dollar (USD) dominates its European and North American peers on expectations that the pace of interest rate cuts by the Federal Reserve (Fed) will be moderate this year than what had been seen in 2024.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh more-than-two-year high at 108.60.

Fed officials have guided fewer interest rate cuts for this year as they are confident about the United States (US) economic outlook. The latest dot plot showed that policymakers collectively see Federal Fund rates heading to 3.9% by 2025, suggesting there will be more than one interest rate cut this year.

For more interest rate cuts, investors will focus on a slew of US labor market-related economic indicators, which will be released next week. Those economic indicators will show the current status of labor demand by US employers.

But before that, the US Dollar will be guided by the ISM Manufacturing PMI data for December, which will be released on Friday. The PMI report is expected to show that the manufacturing activities tick lower 48.3 from the prior release of 48.4, suggesting a contraction at a slightly faster pace.

Meanwhile, the outlook of the Canadian Dollar (CAD) remains bearish as the Bank of Canada (BoC) is expected to continue easing the monetary policy further. BoC officials worry about growing risks of inflation undershooting the bank’s target of 2%.

We consider three scenarios of potential US-led tariffs on China and ASEAN. VN, TH and MY may benefit the most short-term in Scenario 1 due to export reallocation. We also provide an update on the medium-term benefit of FDI into ASEAN as companies diversify their supply chains, Standard Chartered’s economists Edward Lee and Jonathan Koh note.

Analyzing the short-term growth impact of US-led tariffs

“President-elect Trump has threatened to impose tariffs on trading partners on inauguration day. As it stands, the timing and scope of the tariffs remain unclear and may ultimately serve as a negotiating tool to secure concessions on other key issues. We analyze multiple scenarios in an attempt to quantify the impact of tariff imposition on ASEAN economies.”

“We consider three scenarios in our analysis: 1. US imposes 60% tariffs on all imports from China. 2. US imposes 10% tariffs bilaterally on all imports from each ASEAN economy. 3. US imposes a universal 10% tariff on imports from all economies.  We utilize trade in value-added (TiVA) data from OECD, which has data out until 2020. However, we work off 2019 figures in our analysis for two reasons. First, to avoid distortions due to COVID-19. Second, 2019 trade values likely reflected the bulk of the impact from the 2018 US-China trade war.”

“As a start, we need to determine the demand elasticity of US imports with regard to tariffs. According to a paper by Kee, Nicita and Olarreaga1, the import weighted average demand elasticity of US imports is -1.3. Stated differently, every 1% hike in tariffs would lead to a 1.3% fall in imports on average. While we acknowledge that demand elasticity is likely to vary for different products, we use this 1.3% estimate for all imports for simplicity and the highly imprecise elasticity estimate for specific products.”

• Silver price climbs to near $29.40 as US bond yields slump, however, their outlook remain firm.
• Trump’s expected policies will likely be pro-growth and inflationary for the US economy.
• Market experts believe that the Fed will deliver its next interest rate cut decision in March.

Silver price (XAG/USD) kicks off 2025 on a strong note. The white metal gains almost 1.50% in Thursday’s European session and climbs to near $29.40. The asset strengthens as the rally in US bond yields has stalled after surging more than 10% in the last four weeks

10-year US Treasury yields slump to near 4.55%. Lower bond yields on interest-bearing assets indicate lower opportunity costs for non-yielding assets, such as Silver, which improves their appeal.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades sideways near a more-than-two-year high of 108.50.

The outlook of the US Dollar and bond yields is expected to remain firm as the Federal Reserve (Fed) is expected to deliver fewer interest rate cuts this year as officials are upbeat about the economic path. Market participants are also optimistic about the US growth outlook under the administration of President-elect Donald Trump, as his likely policies, such as immigration control, higher import tariffs, and lower taxes, will boost the overall economic activity.

Analysts at Goldman Sachs expect the Fed to deliver the next interest rate cut in March. The investment banking firm also expects that a rate cut of 25 basis points (bps) in March will be followed by two more in June and September, suggesting that borrowing rates will decline in the range of 3.50%-3.75%. In 2024, the Fed also reduced its interest rates three times but by 100 bps to 4.25%-4.50%.

Silver technical analysis

Silver price rebounds sharply to near the 200-day Exponential Moving Average (EMA), which trades around $29.40. However, the outlook of the white metal remains bearish until it stays below the upward-sloping trendline, which is plotted from the February 29 low of $22.30 on a daily timeframe.

The 14-day Relative Strength Index (RSI) rebounds above 40.00. A bearish momentum would come to an end if it sustains above that level.

Looking down, the September low of $27.75 would act as key support for the Silver price. On the upside, the 50-day EMA around $30.90 would be the barrier.

Silver daily chart

• The Pound Sterling trades weakly against its major peers as analysts at Goldman Sachs expect the BoE to deliver four interest rate cuts this year.
• The US Dollar trades close to a fresh two-year high as the Fed is expected to reduce interest rates less than previously anticipated this year.
• Investors await an array of US labor market data on Thursday for fresh Fed policy guidance.

The Pound Sterling (GBP) weakens against its major peers on Thursday amid growing expectations that the Bank of England (BoE) will follow a less gradual rate-cut approach this year. 

The BoE reduced its key borrowing rates by 50 basis points (bps) to 4.75% in 2024. BoE’s policy-easing pace was slow compared to its European and North American peers as inflation in the United Kingdom (UK) service sector remained highly stubborn due to sticky wage growth.

However, a slightly faster rate-cut pace is expected this year, as a slowdown in labor demand would tame price pressures. In a note this week, analysts at Goldman Sachs said that the BoE will cut interest rates each quarter through the year. This indicates that the BoE policy rate will decline to 3.75% by the year-end. 

Daily digest market movers: Pound Sterling edges lower against US Dollar 

• The Pound Sterling trades cautiously near the psychological support of 1.2500 against the US Dollar (USD) at the start of the year. The GBP/USD pair ticks lower in Thursday’s European session and is expected to face more selling pressure ahead as the US Dollar Index (DXY) trades close to a more-than-two-year high at around 108.50.
• The greenback is expected to strengthen as investors expect incoming policies from President-elect Donald Trump to boost economic growth and inflationary pressures in the United States (US). This scenario will compel the Federal Reserve (Fed) to slow the pace of rate cuts, which will be favorable for the US Dollar and US Treasury yields.
• Meanwhile, Fed officials have already recommended fewer interest rate cuts this year. However, Fed Chair Jerome Powell refrains from predicting the likely impact of Trump’s policies, such as immigration controls, higher import tariffs, and lower taxes, on the economy.
• The latest dot plot at the Fed's Summary of Economic Projections showed that policymakers collectively see Federal Fund rates heading to 3.9% by the end of 2025, higher than the 3.4% forecasted in September.
• Going forward, investors will pay close attention to a slew of US labor market-related economic indicators, which will be released next week. Signs of improving labor demand would further weigh on Fed rate cut prospects, while weak numbers would boost them.
• But before that, investors will focus on the ISM Manufacturing Purchasing Managers Index (PMI) data for December, which is scheduled for Friday. The Manufacturing PMI is expected to come in at 48.3, slightly lower than the 48.4 in November.

Technical Analysis: Pound Sterling struggles around 1.2500

The Pound Sterling struggles to hold the key support of 1.2500 against the US Dollar and holds near the seven-month lows on Thursday. The outlook of the GBP/USD pair remains vulnerable as it trades below the upward-sloping trendline around 1.2600, which is plotted from the October 2023 low of 1.2035.

All short-to-long-term Exponential Moving Averages (EMAs) are sloping down, suggesting a strong bearish trend in the long run.

The 14-day Relative Strength Index (RSI) falls below 40.00, signaling that a fresh downside momentum could trigger if the oscillator sustains below this level.

Looking down, if the pair breaks below the immediate support of 1.2485, it is expected to find a cushion near the April 22 low at around 1.2300. On the upside, the December 17 high at 1.2730 will act as key resistance.

Silver prices (XAG/USD) rose on Thursday, according to FXStreet data. Silver trades at $29.33 per troy ounce, up 1.45% from the $28.92 it cost on Wednesday.

Silver prices have increased by 1.52% 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 89.93 on Thursday, down from 90.77 on Wednesday.

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

• EUR/GBP remains solid after the HCOB Manufacturing PMIs released from the Eurozone and Germany.
• Traders await S&P Global/CIPS Manufacturing PMI for the United Kingdom due on Thursday.
• HCOB Eurozone Manufacturing PMI dropped to 45.1 in December from the previous reading of 45.2.

EUR/GBP extends its gains for the second successive day, trading around 0.8280 during the European session on Thursday. The EUR/GBP cross appreciates as the Pound Sterling (GBP) faces challenges due to a mild increase in the Bank of England's (BoE) dovish bets in 2025.

The BoE Governor Andrew Bailey signaled a “gradual” approach to interest rate cuts “remains right,” pushing back against market bets on fewer rate cuts in the coming year. Additionally, Bailey added that the uncertainty surrounding the geopolitical risks and trade policies ahead of Donald Trump’s return to the White House could weigh on the already-slowing UK economy.

On the data front, the non-seasonally adjusted Nationwide House Price Index in the United Kingdom (UK) rose by 4.7% year-on-year in December 2024, the fastest pace since October 2022, following a 3.7% increase in November and exceeding forecasts of 3.8%. Meanwhile, house prices grew 0.7% month-over-month, slowing from 1.2% in November but significantly outpacing expectations of 0.1%.

Furthermore, traders have shifted their focus to the Manufacturing Purchasing Managers Index (PMI) by both the Chartered Institute of Procurement & Supply and S&P Global scheduled to be released later in the day.

In the Eurozone, the HCOB Manufacturing PMI revealed a slight decline in goods production, dropping to 45.1 in December from the previous reading of 45.2. Similarly, Germany's manufacturing sector remains subdued, with the PMI unchanged at 42.5, in line with expectations.

The upside of the EUR/GBP cross could be limited as the Euro struggles as the European Central Bank (ECB) maintains dovish guidance on interest rates policy for this year. The ECB reduced its Deposit Facility rate by 100 basis points (bps) to 3% in 2024 and is expected to lower it further to 2%—considered the neutral rate—by the end of June 2025. This indicates that the ECB will likely cut its key borrowing rates by 25 bps at each meeting during the first half of this year.

ECB President Christine Lagarde said on Wednesday that the central bank aims to achieve its 2% inflation target by 2025. Lagarde stated, “We made significant progress in 2024 in bringing down inflation, and we are hopeful that 2025 will be the year we reach our target, as expected and aligned with our strategy.” She added, “Of course, we will continue our efforts to ensure that inflation stabilizes sustainably at the 2% medium-term target.”

2025 is the best of times, and the worst of times; an epoch of belief, an epoch of incredulity. In an increasingly polarized world, people will cling to one side or the other—without recognizing that both sides can have a point. It is an economist’s role to impartially assess the economic consequences of politics, in clear and direct language. The likely result is that I will upset everyone this year, UBS’ economist Paul Donovan notes.

The risk is political uncertainty

“2025 starts with developed economy consumers in a solid position—balance sheets are OK and real incomes are rising. Developed economy consumers dominate the global economy, and this suggests benign growth. The risk is political uncertainty.”

“US President-elect Trump’s stated aim of aggressively taxing US consumers via tariffs is an example. Markets are not pricing in the inflation and growth consequences of policy pledges becoming reality, and assume dilution. The shift in immigration policy from Trump’s advisor Musk can be cited as a parallel—economic reality tempering political rhetoric.”

“Investors’ assumption that economic reality will limit political extremes is evident elsewhere— China and Germany, for example. As polarization reduces the middle ground, it is inevitable that markets have to pick a side rather than a compromise. But if markets pick the wrong side, the economic fallout will be more dramatic.”

• EUR/USD trades cautiously near 1.0350 as the US Dollar clings to gains.
• The USD sees more upside as the Fed has guided fewer rate cuts in 2025.
• Investors expect the ECB to cut interest rates steadily by 25 bps in each meeting till June.

EUR/USD trades vulnerable and holds near a more-than-a-month low at around 1.0350 on the first trading day of the year. The major currency pair skates on thin ice as the US Dollar (USD) clings to a more than two-year high, with the Dollar Index (DXY) trading around 108.50 on optimism that the Federal Reserve (Fed) will reduce interest rates less than previously anticipated this year. 

The Fed cut its key borrowing rates by 100 basis points (bps) in 2024 as policymakers were more worried about higher risks to employment than upside risks to inflation. However, they have guided fewer interest rate cuts for this year amid an upbeat United States (US) economic outlook. Additionally, a slowdown in the disinflation trend also compelled officials to favor a gradual policy-easing cycle.

The latest dot plot at the Fed's Summary of Economic Projections showed that policymakers collectively see Federal Fund rates heading to 3.9% by the end of 2025, higher than the 3.4% forecasted in September.

According to the CME FedWatch tool, the central bank is almost certain to keep interest rates unchanged in the range of 4.25%-4.50% in the January meeting.

Going forward, the US Dollar will be guided by the United States (US) ISM Manufacturing Purchasing Managers Index (PMI) data for December, which will be released on Friday. The PMI is expected to tick lower to 48.3 from the prior release of 48.4, suggesting that the manufacturing sector activities contracted at a slightly faster pace.

Daily digest market movers: EUR/USD remains vulnerable amid weak Euro

• EUR/USD is also under pressure due to the weak Euro’s (EUR) outlook. The shared currency edges slightly higher on Thursday against the US Dollar. Still, it could face selling pressure as the European Central Bank (ECB) is expected to continue its steady rate-cut cycle until June. This suggests that there will be four interest rate cuts, pushing the Deposit Facility rate lower to 2%.
• Market participants expect further policy easing as Eurozone price pressures are on track to return sustainably to the ECB’s target of 2%. 
• Additionally, investors price in a sharp decline in European exports due to higher import tariffs from the US under the administration of incoming President Donald Trump.
• For more cues on inflation, investors await preliminary German and Eurozone Harmonized Index of Consumer Prices (HICP) data for December, which will be released early next week. Investors will pay close attention to the HICP data as it will indicate whether the ECB will continue easing interest rates at a steady pace of 25 basis points (bps) or pivot to a larger-than-usual pace of 50 bps.
• ECB policymaker and Irish central bank chief Gabriel Makhlouf warned in an interview with the Financial Times (FT) on December 23 that some elements of services inflation in the Eurozone were a bit concerning, which underscores the need for “gradual interest rate cuts, rather than big leaps” unless the facts and evidence changed.

Technical Analysis: EUR/USD trades in Descending Triangle formation

EUR/USD consolidates in a Descending Triangle formation on a daily timeframe. The horizontal support is plotted from the two-year low around 1.0330, while the downward-sloping border is drawn from the November 6 high of 1.0937. The outlook of the major currency pair remains bearish as the 20-day and 50-day Exponential Moving Averages (EMAs) at 1.0433 and 1.0556, respectively, are declining. 

The 14-day Relative Strength Index (RSI) slides below 40.00, indicating that downside momentum is intact.

Looking down, the pair could decline to near the round-level support of 1.0200 after breaking below the two-year low of 1.0330. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.

• USD/CHF retreats from its seven-month high at 0.9080, marked on Tuesday.
• US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December will be eyed on Thursday.
• The safe-haven Swiss Franc receives support from escalating geopolitical tensions.

The USD/CHF pair continues to decline from its seven-month high of 0.9080, as the US Dollar Index (DXY) hovers near 108.30 after retreating from a multi-year high of 108.58 reached on Tuesday. During European trading hours on Thursday, the USD/CHF pair trades around 0.9050.

Traders will likely observe the US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December, scheduled to be released later in the North American session.

However, the downside of the US Dollar could be limited by growing expectations that the US Federal Reserve (Fed) will adopt a slow and cautious approach to further rate cuts in 2025. During its final monetary policy meeting of 2024 on December 18, the Fed signaled plans to reduce interest rates only twice in 2025, a significant decrease from the four rate cuts projected in September’s updated economic outlook.

The Swiss Franc (CHF), a traditional safe-haven currency, gains support amid escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict.

According to Reuters, Russia launched a drone strike on Ukraine's capital, Kyiv, early Wednesday on New Year's Day, causing two fatalities, injuring at least six people, and damaging buildings in two districts. Explosions echoed across the morning as Ukraine's air force warned of incoming drones.

Meanwhile, in northern Gaza, the Israeli military intensified operations, targeting a suburb of Gaza City on Wednesday. Airstrikes in Shejaia killed at least eight Palestinians, according to local medics. The Israeli military has not issued a statement, and the identities of those killed remain unconfirmed.

Earlier this week, the KOF Leading Economic Indicator dropped by 3.4 points in December, falling to 99.5 from a revised 102.9 in November and missing market expectations of 101.1. This decline signals a potential slowdown in Switzerland’s economic outlook.

Looking ahead, the focus will shift to the SVME Purchasing Managers' Index (PMI) for December, which is scheduled for release on Friday.

• NZD/USD appreciates as traders closely monitor signs of a potential recovery in China's economy.
• Chinese President Xi Jinping announced on Tuesday that China will adopt more proactive policies in 2025 to stimulate economic growth.
• US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December will be eyed on Thursday.

NZD/USD extends its gains for the second successive session, trading around 0.5610 during the early European hours on Thursday. This upside of the Kiwi pair is attributed to the improved New Zealand Dollar (NZD) as traders are cautiously monitoring a potential recovery in China's economy following President Xi Jinping's pledge to prioritize growth. As close trade partners, any fluctuations in China's economy tend to impact Australian markets.

In his New Year's address on Tuesday, Xi stated that China would implement more proactive policies to promote growth in 2025, according to Reuters. While China's manufacturing activity showed minimal growth in December, services and construction sectors have seen a recovery. The data indicates that policy stimulus is beginning to have an impact on certain sectors, as China prepares for new trade risks stemming from tariffs proposed by US President-elect Donald Trump.

China's Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, down from 51.5 in November. The market had anticipated a reading of 51.7 for the month. Wang Zhe, an economist at Caixin Insight Group, commented, “Supply and demand expanded. Manufacturers’ output and demand continued to grow as the market improved. The gauge for output remained in expansionary territory for the 14th consecutive month, while total new orders increased for the third straight month.”

Additionally, the upside of the NZD/USD pair is bolstered by the softer US Dollar (USD). The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, trades around 108.30 after pulling back from its multi-year high of 108.58, reached on Tuesday.

The Federal Reserve may adopt a more cautious outlook regarding further rate cuts in 2025, signaling a shift in its monetary policy stance. This change reflects uncertainties surrounding potential policy adjustments in light of the anticipated economic strategies of the incoming Trump administration.

Traders will likely observe the US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December, scheduled to be released later in the North American session.

• WTI price posts modest gains near $71.60 in Thursday’s early European session.
• US crude oil inventories dropped by 1.442 million barrels last week, according to the API. 
• A slower path of the Fed easing cycle and the weak Chinese demand could weigh on the WTI. 

West Texas Intermediate (WTI), the US crude oil benchmark, is trading around $71.60 on Thursday. The WTI price trades with mild gains after the American Petroleum Institute (API) weekly report showed US crude stockpiles continued to shrink.

A fall in US crude inventories last week provides some support to the WTI. The API weekly report showed crude oil stockpiles in the United States for the week ending December 27 declined by 1.442 million barrels, compared to a fall of 3.2 million barrels in the previous week. The market consensus estimated that stocks would decrease by 3.0 million barrels. Furthermore, the escalating geopolitical tensions in the Middle East and ongoing Russia-Ukraine conflicts could boost the WTI price in the near term. 

On the other hand, the expectation that the US Federal Reserve (Fed) would slow the pace of the interest rate cuts in 2025 due to stubbornly high inflation might cap the upside for the black gold. The Fed officials indicated that it probably would only lower twice more in 2025. This, in turn, lifts the Greenback and exerts some selling pressure on the USD-denominated commodity price as it makes oil more expensive in other countries, which can reduce demand.

The recent data released on Thursday showed that China’s factory activity slowed its pace of expansion and came in weaker than expected in December. This reading raised concerns over a slowing economic recovery and weak demand in the world's second-largest economy, which might drag the WTI price lower.

 

Here is what you need to know on Thursday, January 2:

The US Dollar (USD) Index gained more than 2.5% in December and closed the third consecutive month in positive territory. The index stays in a consolidation phase slightly below the 26-month top it touched above 108.50 on the last day of 2024. The US economic calendar will feature weekly Initial Jobless Claims and the Challenger Job Cuts data for December.

Wall Street's main indexes declined sharply heading into the new year, boosting the USD. Early Thursday, US stock index futures trade in positive territory, pointing to an improving risk mood.

EUR/USD lost about 0.5% on Tuesday and closed the month of December below 1.0400. The pair trades in a tight channel above 1.0350 in the European morning on Thursday. Revisions to December HCOB Manufacturing PMI data for the Eurozone and Germany will be released later in the session.

GBP/USD closed in negative territory on Monday and Tuesday. The pair holds steady above 1.2500 early Thursday.

During the Asian trading hours, the data from China showed that the Caixin Manufacturing PMI declined to 50.5 n December from 51.5 in November, missing the market expectation of 51.7. Despite this disappointing reading, AUD/USD edges higher on Thursday and was last seen rising nearly 0.5% on the day at 0.6215.

Gold stretched lower ahead of the New Year holiday but managed to stabilize above $2,600. XAU/USD holds its ground and trades above $2,630 to start the European session.

After reaching its highest level since July above 158.00 following the Christmas break, USD/JPY corrected lower toward the end of the year. The pair stays on the back foot in the European morning and was last seen losing about 0.3% on the day below 157.00.

• USD/CNH weakens to around 7.3170 in Thursday’s early European session, down 0.29% on the day.
• The positive view of the pair prevails above the key 100-day EMA with the bullish RSI indicator. 
• The first upside barrier is seen in the 7.3400-7.3405 zone; the initial support level is located at 7.2974. 

The USD/CNH pair attracts some sellers to near 7.3170 during the early European trading hours on Thursday. However, the downside for the pair might be limited amid the prospect of slower US interest rate cuts in 2025 and the potential protectionist policies under incoming President Donald Trump. 

The latest Chinese Caixin Manufacturing Purchasing Managers Index (PMI) showed that the country’s manufacturing sector came in weaker than expected in December. This reading raised concerns over a slowing economic recovery in the world's second-largest economy and might create a headwind for the Chinese Yuan. 

According to the daily chart, the bullish outlook of USD/CNH remains intact, characterised by the price holding above the key 100-period Exponential Moving Average (EMA). The upward momentum is supported by the Relative Strength Index (RSI), which stands above the midline near 59.30, suggesting the path of least resistance is to the upside. 

The confluence of the upper boundary of the Bollinger Band and the psychological level at the 7.3400-7.3405 region acts as an immediate resistance level for the pair. A decisive break above this level could pave the way to 7.3697, the high of December 31. 

On the downside, the initial support level for USD/CNH emerges at 7.2974, the low of December 30. Extended losses could see a drop to 7.2745, the low of December 13. The additional downside filter to watch is 7.2588, the lower limit of the Bollinger Band. 

USD/CNH daily chart

• USD/CAD loses ground as a result of a downward correction in the US Dollar.
• The US Dollar Index retreats from its multi-year high of 108.58, reached on Tuesday.
• The commodity-linked CAD receives support from the improving WTI prices.

USD/CAD halts its two days of gains, trading around 1.4370 during the Asian hours on Thursday. This downside of the pair could be attributed to the downward correction in the US Dollar. The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, trades around 108.30 after pulling back from its multi-year high of 108.58, reached on Tuesday.

The Federal Reserve may adopt a more cautious outlook regarding further rate cuts in 2025, signaling a shift in its monetary policy stance. This change reflects uncertainties surrounding potential policy adjustments in light of the anticipated economic strategies of the incoming Trump administration.

Additionally, the USD/CAD pair faces challenges as the Canadian Dollar (CAD) receives support from the improving crude Oil prices, given that Canada is the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price extends its gains for the fifth successive day, trading around $71.70 per barrel at the time of writing.

Oil prices start the New Year 2025 by gaining ground amid investors returning from holidays cautiously eyed a recovery in China's economy and fuel demand following a pledge by President Xi Jinping to promote growth. On Tuesday, Xi stated that China would implement more proactive policies to promote growth in 2025, according to Reuters.

Looking ahead, the US weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December from both economies will be released later in the North American session.

FX option expiries for Jan 2 NY cut at 10:00 Eastern Time via DTCC can be found below.

EUR/USD: EUR amounts

• 1.0400 2.5b
• 1.0450 1.2b
• 1.0500 2b
• 1.0600 1.2b

GBP/USD: GBP amounts     

• 1.2500 1b

USD/JPY: USD amounts                     

• 154.30 2.1b
• 156.65 1.1b

AUD/USD: AUD amounts

• 0.6175 620m
• 0.6400 702m

USD/CAD: USD amounts       

• 1.4180 847m

NZD/USD: NZD amounts

• 0.5650 441m

Gold prices rose in India on Thursday, according to data compiled by FXStreet.

The price for Gold stood at 7,257.13 Indian Rupees (INR) per gram, up compared with the INR 7,235.03 it cost on Wednesday.

The price for Gold increased to INR 84,645.79 per tola from INR 84,387.91 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

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

• Gold prices continue to extend gains following an impressive 27% gain, marking the strongest annual performance since 2010.
• The precious metal Gold receives support as the US Dollar Index retreats from the multi-year high of 108.58, reached on Tuesday.
• The non-yielding Gold may struggle due to the Fed’s hawkish shift in its monetary policy stance.

Gold price (XAU/USD) rises for the third consecutive session on Thursday, following a more than 27% increase in 2024, marking its best performance since 2010. This upward momentum has been driven by US monetary easing, persistent geopolitical tensions, and record central bank purchases.

However, the non-interest-bearing Gold may encounter some headwinds as the Federal Reserve (Fed) is expected to take a more cautious approach toward further rate cuts in 2025, signaling a hawkish shift in its monetary policy stance. This change is influenced by uncertainties surrounding potential policy shifts under the incoming Trump administration’s economic plans.

Geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict are expected to continue supporting Gold, a traditional safe-haven asset, in the near term. Additionally, a World Gold Council survey suggests that major central banks are likely to increase Gold purchases over the next 12 months, further boosting demand for the precious metal.

Gold price receives support from safe-haven flows amid ongoing geopolitical tensions

• The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, retreats from multi-year highs, trading around 108.30 at the time of writing. The softer US Dollar (USD) may have provided support for dollar-denominated Gold, making it more affordable for buyers using foreign currencies.
• Gold, which offers no yield, could have faced challenges as the 10-year US Treasury bond yield rose to 4.58% on Tuesday.
• Investors are cautiously monitoring a potential recovery in China's economy and fuel Gold demand, following President Xi Jinping's pledge to prioritize growth. In his New Year's address on Tuesday, Xi stated that China would implement more proactive policies to promote growth in 2025, according to Reuters.
• While China's manufacturing activity showed minimal growth in December, services and construction sectors have seen a recovery. The data indicates that policy stimulus is beginning to have an impact on certain sectors, as China prepares for new trade risks stemming from tariffs proposed by US President-elect Donald Trump.
• Reuters cited that Russia launched a drone strike on Ukraine's capital, Kyiv, on New Year's Day early Wednesday, resulting in two deaths, at least six injuries, and damage to buildings in two districts. Explosions echoed across the morning sky as Ukraine's air force issued warnings of incoming drones.
• Meanwhile, the Israeli military maintained pressure on northern Gaza, carrying out strikes in a suburb of Gaza City on Wednesday, according to medics. Airstrikes in Shejaia, a suburb of Gaza City, killed at least eight Palestinians. The Israeli military has not yet commented, and the identities of those killed in the attack remain unclear.

Technical Analysis: Gold price surpasses nine-day EMA to near $2,650

Gold price trades near $2,630.00 per troy ounce on Thursday, with the daily chart indicating a consolidation phase as the metal moves sideways. However, the price of the yellow metal moves above the nine- and 14-day Exponential Moving Averages (EMAs), suggesting a bullish shift in the short-term momentum. Additionally, the 14-day Relative Strength Index (RSI) hovers around the 50 mark, reflecting a neutral sentiment.

The XAU/USD pair may explore the area around the psychological resistance of $2,700.00, followed by the next barrier at its monthly high of $2,726.34, reached on December 12.

Regarding its support, the XAU/USD pair may test immediate 14- and nine-day EMAs at $2,626.00 and $2,624.00, respectively. Further support appears around its monthly low of $2,583.39, recorded on December 19.

XAU/USD: Daily Chart

• USD/JPY gathers strength to near 157.30 in Thursday’s Asian session. 
• The bets on fewer cuts by the Fed this year support the USD. 
• BoJ's Ueda expected further progress in hitting the price target this year. 

The USD/JPY pair gains ground to around 157.30 during the early Asian trading hours on Thursday. The anticipation of the US interest rates staying higher for longer lifts the US dollar (USD) against the Japanese Yen (JPY). Markets in Japan are closed for the rest of the week. On Friday, the US S&P Global Manufacturing PMI for December will be closely watched. 

The US Dollar Index (DXY), which measures the value of the USD against its six major peers, currently trades near 108.36. Traders continue to digest the Federal Reserve's (Fed) hawkish rate cut by a quarter point at the December meeting. Analysts expect that some of Trump's policy proposals, including tariffs, could lead to higher inflation. Fed Chair Jerome Powell stated that it's too early to predict that, highlighting the central bank to be cautious about further cuts in interest rates. A wide interest rate difference between the US and Japan acts as a tailwind for the pair in the near term. 

The Bank of Japan (BOJ) Governor Kazuo Ueda said last week that the central bank expects the Japanese economy to move closer to sustainably achieving the 2% inflation target this year. The BOJ will release its quarterly report on regional economic conditions next week, which will most likely include a view of whether wage hikes are spreading countrywide. This report could offer some hints about the BoJ’s next policy decision on January 24. 

Meanwhile, the verbal intervention by the Japanese authorities might help limit the JPY’s losses. Japan's Finance Minister Katsunobu Kato noted on Friday that the official will take suitable measures against excessive foreign exchange movements.

• The Australian Dollar receives support after the release of China's Caixin Manufacturing PMI on Thursday.
• China's manufacturing output in December continued to expand, marking its 14th consecutive month in growth territory.
• The US Dollar Index bounced back to multi-year highs due to the Federal Reserve's hawkish policy shift.

The Australian Dollar (AUD) gains ground against the US Dollar (USD) after the Caixin Manufacturing Purchasing Managers’ Index (PMI) from China was released on Thursday. As close trade partners, any fluctuations in China's economy tend to impact Australian markets.

China's Caixin Manufacturing PMI unexpectedly dropped to 50.5 in December, down from 51.5 in November. The market had anticipated a reading of 51.7 for the month. Wang Zhe, an economist at Caixin Insight Group, commented, “Supply and demand expanded. Manufacturers’ output and demand continued to grow as the market improved. The gauge for output remained in expansionary territory for the 14th consecutive month, while total new orders increased for the third straight month.”

The Reserve Bank of Australia’s (RBA) policymakers had grown more confident about inflation, though risks persisted. The board emphasized the need for monetary policy to remain "sufficiently restrictive" until there was greater certainty about inflation.

Australian Dollar appreciates despite a stronger US Dollar amid Fed’s hawkish policy shift

• The US Dollar Index (DXY), which tracks the value of the US Dollar against six major currencies, has rebounded to multi-year highs, trading around 108.50 at the time of writing. This surge is attributed to the US Federal Reserve's (Fed) hawkish policy shift.
• The Federal Reserve may adopt a more cautious outlook regarding further rate cuts in 2025, signaling a shift in its monetary policy stance. This change reflects uncertainties surrounding potential policy adjustments in light of the anticipated economic strategies of the incoming Trump administration.
• Escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine war are likely to support the USD, a traditional safe-haven currency, in the near term. Analysts at Action Economics observed, “The greenback has been boosted by rising growth concerns elsewhere against the backdrop of geopolitical risk.”
• Traders are cautious regarding President-elect Trump’s economic policies, fearing that tariffs could increase the cost of living. These concerns were compounded by the Federal Open Market Committee’s (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
• China's official Manufacturing PMI slipped to 50.1 in December, down from 50.3 in the previous reading and below market expectations of 50.3. Meanwhile, the NBS Non-Manufacturing PMI improved significantly, rising to 52.2 in December from November's 50.0 and beating estimates of 50.2.
• The RBA board noted that if future data aligns with or falls below forecasts, it would bolster confidence in inflation and make it appropriate to start easing policy restrictions. However, stronger-than-expected data could require maintaining restrictive policies for a longer period.
• Reserve Bank of Australia Governor Michele Bullock highlighted the continued strength of the labor market as a key reason the RBA has been slower than other nations to commence its monetary easing cycle.

Australian Dollar rises above 0.6200, next barrier appears at nine-day EMA

The AUD/USD pair trades near 0.6210 on Thursday, maintaining a bearish outlook on the daily chart as it trades within a descending channel pattern. The 14-day Relative Strength Index (RSI) has rebounded above 30, hinting at the possibility of a near-term upward correction.

Immediate resistance lies at the nine-day Exponential Moving Average (EMA) at 0.6225, with the next obstacle at the 14-day EMA at 0.6251. A key resistance level is the descending channel’s upper boundary, around the psychological mark of 0.6300.

On the downside, the AUD/USD pair could navigate the support region near the lower boundary of the descending channel, around 0.6040.

AUD/USD: Daily Chart

• The Indian Rupee softens in Thursday’s Asian session. 
• USD bids from importers and subdued foreign inflows continue to undermine the INR. 
• Investors brace for India’s December HSBC Manufacturing PMI and the US weekly Initial Jobless Claims. 

The Indian Rupee (INR) remains weak on Thursday. The reasons attributed to the weakening in the local currency are an increase in demand for US Dollar (USD) from importers, a higher 10-year US Treasury yield and concerns about India's slowing economic growth.

On the other hand, the downside for the INR might be limited as the Reserve Bank of India (RBI) will likely continue to intervene in the currency market to curb volatility. Later on Thursday, India’s HSBC Manufacturing Purchasing Managers Index (PMI) for December is due. On the US docket, the weekly Initial Jobless Claims and S&P Global Manufacturing PMI for December will be published. 

Indian Rupee remains fragile amid importer USD bids and domestic factors

• “The rupee is still susceptible to downward pressure, given strong dollar bids and robust US yields,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP. 
• According to Reuters, the bearish bias of the INR is driven by a combination of factors, including the Greenback maintaining its strength near 108.48 and persistent concerns over slowing domestic growth and a widening trade deficit.
• India's fiscal deficit for the April-November period of FY25 stood at 8.47 trillion rupees ($98.90 billion), or 52.5% of the estimate for the financial year, according to official data released on Tuesday. The fiscal deficit widened from 50.7% reported in the comparable year-earlier period. 
• The real GDP growth is estimated at 6.6% for 2024-25, and 6.9% for the first quarter of 2025-26, as per the Reserve Bank of India (RBI).
• The US Housing Price Index rose 0.4% MoM in October versus 0.7% prior, according to the Federal Housing Finance Agency. This reading came in weaker than the 0.5% expected. 
• The US S&P/Case-Shiller Home Price Indices climbed 4.2% YoY in October, compared to 4.6% in the previous reading, beating the estimation of 4.1%.

USD/INR maintains a positive tone despite the overbought RSI condition

The Indian Rupee trades in negative territory on the day. Technically, the USD/INR broke above the ascending trend channel over the past week. The constructive view of the pair prevails as the price holds above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Nonetheless, the 14-day Relative Strength Index (RSI) reading above 70 suggests an overbought condition and signals that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation. 

The all-time high of 85.81 acts as an immediate resistance level for USD/INR. If bulls manage to break above this level, then a move to the 86.00 psychological level could be in play in the short term.

On the flip side, the first downside target is seen at the resistance-turned-support level of 85.50. A breach of the mentioned level could draw in sellers to 85.00, the round figure, en route to the 100-day EMA at 84.37. 

China's Caixin Manufacturing Purchasing Managers' Index (PMI) unexpectedly fell to 50.5 in December after recording 51.5 in November, the latest data showed on Thursday.

The market forecast was for a 51.7 reading in the reported month.

Key highlights (via Caixin)

“Supply and demand expanded. Manufacturers’ output and demand continued to grow as the market improved. The gauge for output stayed in expansionary territory for the 14th consecutive month, while total new orders rose for the third straight month,” said Wang Zhe, an economist at Caixin Insight Group.

Wang added, “however, both grew at a slower clip as the production and sales of investment goods fell. Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade.”

Data released by China’s National Bureau of Statistics (NBS) showed Tuesday that the official Manufacturing Purchasing Managers' Index (PMI) eased to 50.1 in December, missing estimates of 50.3. The Non-Manufacturing PMI rose to 52.2 in the same period vs. November’s 50.0 and the expected 50.2 print.

AUD/USD reaction to China’s PMI data

The downbeat Chinese Manufacturing PMI weighs negatively on the Aussie Dollar, as AUD/USD pauses its upswing near 0.6220 at the time of writing, up 0.34% on the day.

• EUR/USD faces headwinds as the ECB sustains its dovish stance on interest rate policy for 2025.
• The ECB is anticipated to reduce its Deposit Facility rate to 2%, regarded as the neutral rate, by June 2025.
• The US Dollar Index surged to multi-year highs following the Federal Reserve's hawkish policy shift.

EUR/USD continues to lose ground for the fourth successive day, trading around 1.0350 during the Asian hours on Thursday. The Euro faces challenges as the European Central Bank (ECB) maintains dovish guidance on interest rates policy for this year.

The ECB reduced its Deposit Facility rate by 100 basis points (bps) to 3% in 2024 and is expected to lower it further to 2%—considered the neutral rate—by the end of June 2025. This indicates that the central bank will likely cut its key borrowing rates by 25 bps at each meeting during the first half of this year.

On Wednesday, ECB President Christine Lagarde stated that the central bank aims to achieve its 2% inflation target by 2025. Lagarde remarked, “We made significant progress in 2024 in bringing down inflation, and we are hopeful that 2025 will be the year we reach our target, as expected and aligned with our strategy.” She added, “Of course, we will continue our efforts to ensure that inflation stabilizes sustainably at the 2% medium-term target.”

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, rebounded to multi-year highs and traded around 108.50 due to the US Federal Reserve’s (Fed) hawkish pivot.

The Federal Reserve may adopt a more cautious outlook regarding further rate cuts in 2025, signaling a shift in its monetary policy stance. This change reflects uncertainties surrounding potential policy adjustments in light of the anticipated economic strategies of the incoming Trump administration.

• GBP/USD remains weak near 1.2510 in Thursday’s Asian session. 
• Fed officials projected they will make just two quarter-percentage-point rate reductions by the end of 2025.
• Dovish BoE bets and Trump’s tariff threats could undermine the GBP. 

The GBP/USD pair remains on the defensive around 1.2510 on Thursday during the Asian session, pressured by the stronger US Dollar (USD) broadly. The prospect that the Federal Reserve will slow the easing cycle this year supports the Greenback against the Pound Sterling (GBP). 

The Fed lowered the Federal Funds Rate to a range of 4.25% to 4.5% in its December meeting, down from its target range of 4.5% to 4.75%. Fed Chair Jerome Powell emphasised the need for caution on further rate reductions amid stubbornly high inflation. Powell said that the US central bankers anticipated a higher inflation outlook and fewer rate cuts next year. Fed officials pencilled in only two rate cuts in 2025, down from the four it had forecast in September.

On the other hand, a mild increase in the Bank of England's (BoE) dovish bets this year drags the Cable lower. The BoE Governor Andrew Bailey signalled a “gradual” approach to interest rate cuts “remains right,” pushing back against market bets on fewer rate cuts in the coming year. Additionally, Bailey added that the uncertainty surrounding the geopolitical risks and trade policies ahead of Donald Trump’s return to the White House could weigh on the already-slowing UK economy, creating a headwind for the GBP. 

The People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead on Thursday at 7.1879, as compared to the previous day's fix of 7.1884 and 7.2916 Reuters estimates.

• Gold price holds positive ground to near $2,625 in Thursday’s early Asian session. 
• Geopolitical risks, central bank buying, and safe-haven flows might boost the Gold price. 
• The expectation of a slower pace of the Fed rate cut might cap the upside for the yellow metal. 

Gold price (XAU/USD) trades with mild gains to around $2,625 during the early Asian session on Thursday. The uncertainties around Donald Trump's tariff policies, geopolitical risks, and central bank buying support the yellow metal. Nonetheless, the cautious stance of the US Federal Reserve (Fed) might cap the Gold's upside. 

Traders awaited fresh catalysts that could influence the Fed's interest rate outlook this year. In December, Fed Chair Jerome Powell signaled a cautious stance on further rate cuts after delivering a 25 basis points (bps) reduction. This, in turn, could provide some support to the Greenback and undermine the USD-denominated commodity price. 

The release of the US weekly Initial Jobless Claims on Thursday might offer some hints about the US labor market condition, On Friday, the US S&P Global Manufacturing PMI for December will be in the spotlight. 

On the other hand, the uncertainties surrounding policies from incoming President Donald Trump could lift the precious metal. Additionally, geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict are expected to remain high this year, which could boost the safe-haven flows, benefiting the Gold price. 

An increase in global central banks gold demand might contribute to the precious metal metal’s upside. According to the World Gold Council survey, major central banks are likely to purchase more Gold in the next 12 months. This should further bolster demand for the yellow metal.