Gold Hits $2,800, USD Strengthens on Fed News (3-7 February)

The U.S. dollar index rebounded, supported by solid GDP growth, the Fed’s hawkish stance, and Trump’s 25% tariffs on Mexico and Canada.

EUR/USD fell on ECB rate cut expectations, GBP/USD saw modest losses ahead of a possible BoE cut, while the Japanese yen strengthened to 154 per dollar on BoJ rate hike bets.

Gold surged to $2,800, hitting an all-time high amid tariff concerns and central bank easing. Silver reached seven-week highs as safe-haven demand grew. The Silver Institute projects a fifth consecutive market deficit in 2025, driven by strong industrial demand.

The 10-year U.S. Treasury yield dipped slightly, while Chinese and Japanese bond yields rose, and Eurozone yields declined.

Initial Jobless Claims

Initial jobless claims fell by 16,000 to 207,000 for the week ending January 25, well below the 220,000 forecast. Continuing claims dropped by 42,000 to 1,858,000, reinforcing the Fed’s view of a resilient labor market, allowing rates to remain restrictive.

China Manufacturing PMI

China’s NBS Manufacturing PMI fell to 49.1 in January 2025, missing expectations and dropping from December’s 50.1. This marks the first contraction since September and the sharpest decline in five months, driven by weaker factory activity before the Lunar New Year.

US New Home Sales (Dec)

New single-family home sales rose 3.6% to 698,000 in December 2024, the highest since September and above the 670,000 forecast. This increase came despite rising mortgage rates amid inflation concerns and the Fed’s hawkish stance.

Durable Goods Orders (MoM) (Dec)

Durable goods orders fell 2.2% to $276.1 billion in December 2024, following a revised 2% drop in November, far below the expected 0.6% increase. The decline was mainly due to a 7.4% drop in transportation equipment, with nondefense aircraft and parts plunging 45.7%, likely due to lower Boeing orders.

CB Consumer Confidence (Jan)

The Conference Board Consumer Confidence Index® dropped by 5.4 points in January, reaching 104.1 (1985=100). The December figure was revised upward by 4.8 points to 109.5, though it still marked a decrease of 3.3 points compared to the previous month.

BoC Interest Rate Decision

The Bank of Canada cut its key interest rate by 25 basis points to 3%, as expected, bringing total reductions to 200 basis points since June 2024. It also ended quantitative tightening and will resume asset purchases in March to support liquidity.

The Governing Council noted CPI inflation has aligned with the 2% target and is expected to remain stable, though US tariffs could challenge Canada’s recovery. Despite this, GDP is projected to grow 1.8% over the next two years, following an expected 1.3% expansion in 2024.

Fed Interest Rate Decision

The Fed kept the federal funds rate at 4.25%-4.5%, pausing after three consecutive cuts in 2024 totaling 100 basis points. Chair Powell signaled no urgency to cut further, awaiting more inflation progress.

Policymakers noted solid economic growth, a strong labor market, and persistently elevated inflation. The Fed removed its reference to progress toward the 2% target and emphasized uncertainty in the economic outlook, closely monitoring risks to its dual mandate.

German GDP (Q4)

The German economy shrank by 0.2% in the fourth quarter of 2024, following a 0.1% growth in the third quarter, according to preliminary data released by Destatis on Thursday. This decline was worse than the market's expectation of a 0.1% drop. On an annual basis, the GDP contracted by 0.2% in Q4, an improvement from the 0.3% decline recorded in Q3, but still below the anticipated flat growth.

EU Deposit Facility Rate (Jan)

As expected, the European Central Bank (ECB) lowered interest rates by 25 basis points during its January 2025 meeting, marking the fifth rate cut since the easing cycle began in June 2024. This reduction brings the key deposit rate to 2.75%, its lowest level since early 2023.

U.S. GDP (Q4)

The US economy expanded at an annualized 2.3% in Q4 2024, the slowest in three quarters, down from 3.1% in Q3 and below the 2.6% forecast. Growth was driven by strong personal consumption, which rose 4.2%—the highest since Q1 2023. Goods spending increased by 6.6% and services by 3.1%.

Fixed investment contracted for the first time since Q1 2023, declining 0.6%, mainly due to lower equipment (-7.8%) and structures (-1.1%) spending. Intellectual property investment grew 2.6%, while residential investment rebounded by 5.3%. Private inventories dragged growth by 0.93 percentage points. Exports and imports both fell by 0.8%, keeping net trade's impact neutral. Government spending slowed to 2.5% from 5.1%. For 2024, the US economy grew by 2.8%.

German CPI (MoM) (Jan)

Germany’s annual inflation dropped to 2.3% in January, down from 2.6% in December and below expectations. Food inflation slowed to 0.8% (from 2.0%), while services rose at a slightly slower pace (4.0% vs. 4.1%). Energy costs fell 1.6%, matching December’s decline. Core inflation eased to 2.9%, a three-month low. Monthly consumer prices fell 0.2%, missing the expected 0.1% increase.

US Core PCE Inflation (Dec 2024)

The US PCE price index rose 0.3% in December, the largest gain in eight months, while core PCE increased 0.2%. Year-over-year, headline PCE inflation climbed to 2.6% (from 2.4%), marking a third straight rise, while core PCE held steady at 2.8%, in line with forecasts.

Currencies

The U.S. dollar index rebounded from last week’s low, set to end the week higher. Strong GDP growth, despite missing expectations, and the Fed’s hawkish stance supported the dollar. Trump’s announcement of 25% tariffs on Mexico and Canada added to its strength.

EUR/USD closed the week lower as expectations of additional ECB rate cuts weighed on the euro. The ECB lowered its deposit rate to 2.75% and signaled possible further cuts amid economic uncertainty. Eurozone GDP stagnated in Q4, missing the expected 0.1% growth.

The British pound posted modest losses against the dollar, pressured by its strength and expectations of a 25 basis point Bank of England rate cut next week. Investors remain cautious ahead of key economic data releases.

The Japanese yen strengthened to 154 per dollar, driven by rising expectations of further Bank of Japan rate hikes. BOJ Deputy Governor Himino suggested more hikes could come if economic growth and inflation remain on track. Tokyo’s core inflation hit an 11-month high of 2.5% in January, while retail sales, industrial production, and employment data surpassed forecasts.

The Canadian dollar weakened following the Bank of Canada’s 25 basis point rate cut to 3.0% and the end of its quantitative tightening program. The BoC plans to restart asset purchases in March, but concerns over U.S. tariffs remain a key risk. The Fed’s hawkish stance and the widening rate gap are adding pressure on the loonie.

Commodities

Gold surged toward $2,800 per ounce, hitting an all-time high as investors sought safe-haven assets amid Trump’s renewed tariff threats and trade war fears. The rally was fueled by easing monetary policies, with the ECB, BoC, and Riksbank cutting rates, while the PBoC and RBI signaled looser policies. US rates remained steady, reinforcing expectations of two cuts this year. Gold is set for its biggest monthly gain since March 2024.

Silver jumped to a seven-week high as Trump reaffirmed 25% tariffs on Mexico and Canada, boosting safe-haven demand. The Silver Institute projected a fifth consecutive market deficit in 2025, driven by strong industrial demand for solar panels, EVs, and electronics, despite rising supply from China, Canada, and Chile.

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