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A correction was issued on an FXStreet article initially written before the Reserve Bank of New Zealand’s monetary policy announcement. Published post-announcement, it became outdated immediately and should not have been published.
FXStreet Insights Team compiles market observations and insights from various experts. Their newsletter delivers expert analysis daily, not just headlines, directly to inboxes. The team provides market content, including analytics and insights related to currency pairs, commodities, and global market trends.
Gold Prices And Currency Dynamics
Gold prices reached two-month highs exceeding $4,260, propelled by expectations of a Federal Reserve rate cut. Meanwhile, GBP/USD climbed around 1.3270 amid predictions of a dovish Fed, and the EUR/USD hit three-week peaks near 1.1650 before US PMI figures.
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The US Dollar is clearly on the back foot as we begin December. We see futures markets now pricing in an over 85% probability of a 25-basis-point cut at the Fed’s meeting later this month. This follows last month’s weaker-than-expected Non-Farm Payrolls report and a core inflation print that fell closer to the Fed’s target.
Given this backdrop, we anticipate further upside for EUR/USD, which is already testing three-week highs near 1.1650. Call options with strike prices above 1.1700 could offer attractive risk-reward profiles in the coming weeks. While Eurozone manufacturing data has been mixed, the services sector has shown surprising resilience, supporting the single currency.
GBP USD And Gold Outlook
We see a similar dynamic in GBP/USD, which is holding firm around the 1.3270 mark. The move is less about Sterling strength and more about pronounced Dollar weakness, as the Bank of England is expected to hold rates steady through the winter. This policy divergence should continue to favor the Pound over the Dollar.
Gold has also broken out, clearing the $4,260 level to reach its highest point in two months. Lower US interest rates directly compress real yields, making non-yielding Gold a compelling asset for traders. We saw a similar setup in the lead-up to the Fed’s policy pivot back in late 2023, which preceded a significant rally in the metal.
The main risk to this entire perspective is the upcoming US ISM PMI data. A surprisingly strong reading could quickly unwind expectations for a December rate cut and cause a sharp Dollar rebound. Derivative traders should consider protective puts on major currency pairs as a hedge against this possibility.
