Fed Rate Cuts and Inflation Data Drive Mixed Market Moves (23 - 27 December)

The dollar index peaked at a two-year high of 108.5, supported by hawkish remarks from Fed Chair Powell, but eased as positive inflation data boosted expectations for rate cuts in 2025. Core PCE prices increased by 0.1% in November, raising hopes for disinflation.

The euro declined to $1.0340 amid weak economic data from the Eurozone, while the British pound fell below $1.25, weighed down by rising inflation and a cautious stance from the Bank of England.

The Japanese yen saw a modest recovery after inflation data heightened the likelihood of a more hawkish Bank of Japan, though it remained under pressure due to the strength of the U.S. dollar.

Gold dropped to $2,600 per ounce, driven lower by the Fed’s hawkish outlook and expectations of slower rate cuts in 2025. Strong U.S. economic data further diminished gold’s appeal.

Silver fell to $29 per ounce, impacted by weak industrial demand, particularly from China's solar panel industry, and concerns over yuan devaluation. Despite recent losses, both gold and silver have posted significant gains this year, supported by safe-haven demand and central bank purchases.

U.S. Treasury yields showed mixed performance, with the 10-year yield rising to 4.50% and the 2-year yield closing the week at 4.27% after a sharp increase earlier in the week.

S&P Global US Manufacturing PMI

The S&P Global US Manufacturing PMI declined to 48.3 in December, down from 49.7 in November, falling short of the expected 48.9. This marks the sixth consecutive month of contraction, driven by a decline in new orders and output, which reached its lowest level since August 2009, excluding the 2020 pandemic downturn. Employment growth slowed, while rising raw material costs added inflationary pressures. Concerns over weak demand and tariff risks under the Trump administration persist.

S&P Global US Services PMI

The Services PMI rose to 58.5 in December, up from 56.1 and surpassing the forecast of 55.7. This reflects the strongest growth since October 2021, supported by increased new orders and employment. Cost growth slowed to a four-and-a-half-year low, while optimism improved due to expectations of reduced regulation and protectionist policies under the Trump administration.

U.S. Retail Sales (November)

Retail sales grew 0.7% month-on-month in November, outperforming the expected 0.5% increase. Growth was led by motor vehicle dealers (+2.6%) and nonstore retailers (+1.8%), while declines were observed in food services (-0.4%) and general merchandise stores (-0.1%). GDP-related retail sales, excluding specific categories, rose by 0.4%.

UK Consumer Price Index (CPI)

UK inflation increased to 2.6% in November from 2.3% in October, in line with expectations. The rise was driven by recreation and culture (+3.6%) and housing and utilities (+3%), while transport prices fell more slowly (-0.9%). Core CPI remained stable month-on-month but increased by 3.5% year-on-year.

Eurozone Consumer Price Index (CPI)

Eurozone inflation rose to 2.2% in November, up from 2% in October but below the preliminary estimate of 2.3%. Energy prices fell less sharply, while services and food costs eased. Monthly CPI decreased by 0.3%, with core inflation confirmed at 2.7%.

Federal Reserve Interest Rate Decision

The Federal Reserve lowered its benchmark rate by 25 basis points in December to 4.25%-4.50%. Projections for 2025 were revised, reducing expected rate cuts from four to two (50bps total). GDP growth forecasts for 2024 and 2025 were raised, alongside upward revisions to inflation expectations.

Bank of Japan (BOJ) Interest Rate Decision

The Bank of Japan maintained its key rate at 0.25%, the highest since 2008, with an 8-1 vote. Inflation ranged between 2%-2.5%, but the BoJ cited the need to monitor wage trends and global risks, including U.S. economic policies under Trump, before considering further tightening measures.

Bank of England (BOE) Interest Rate Decision

The Bank of England held its policy rate at 4.75% as inflation risks remained significant. However, three committee members supported a 25bps rate cut due to weak demand and a cooling labor market. The Bank emphasized maintaining restrictive policies to achieve its inflation target.

U.S. GDP Growth Rate (Q3 2024)

The U.S. economy expanded by 3.1% in Q3 2024, up from the initial estimate of 2.8%, marking the highest growth rate of the year. Personal spending rose 3.7%, while fixed investment and government consumption exceeded expectations. Exports surged by 9.6%, though private inventories dragged on overall growth.

Initial Jobless Claims (December)

Initial jobless claims in the U.S. fell by 22,000 to 220,000 in early December, exceeding expectations. Continuing claims decreased to 1.874 million, while the four-week moving average increased slightly to 225,500. Notable declines were observed in states such as New York and Georgia.

Core PCE Price Index (November)

The Core PCE Price Index rose by 0.1% month-on-month in November. Annually, core prices increased by 2.8%, while the broader PCE price index rose by 2.4%. Goods prices declined by 0.4%, while services rose by 3.8%.

Currencies

The dollar index climbed to a two-year high of 108.5, supported by hawkish Fed signals, before easing slightly on weaker inflation data. The euro fell to $1.0340 due to weak Eurozone economic data and political instability, while the British pound dropped below $1.25 amid rising inflation. The yen weakened initially but rebounded after inflation data exceeded expectations.

Commodities

Gold prices fell to $2,600 per ounce, pressured by expectations of slower Fed rate cuts and weak demand from India. Despite this decline, gold gained 25% over the year on safe-haven demand. Silver dropped to $29 per ounce, impacted by weak industrial demand, overcapacity in China's solar sector, and concerns over yuan devaluation.

Latest Analysis

Christmas and New Year Holidays 2024

Please be informed that trading hours for certain instruments will be adjusted between 23 December 2024 and 2 January 2025 due to the upcoming Christmas and New Year holidays.

Detail

Swiss Franc Weakens After SNB Decision, Dollar Strengthens (16-20 December)

The dollar index rose above 107, gaining 1% for its strongest week in a month, as markets priced in a 25-basis point Fed rate cut next week.

Detail