Dollar Rises on Rate Cut Bets, Gold Gains Nearly 1% (16-20 December)

The dollar index rose above 107, gaining 1% for the week, as markets priced in a 25-basis point Fed rate cut, with 2025 remaining uncertain.

The euro weakened after the ECB’s 25-basis point cut, while the pound hit a six-month low on weak growth data. Markets expect three Bank of England rate cuts in 2024. 

Gold rose nearly 1% on mixed U.S. inflation data and jobless claims, with a 93% chance of a December Fed rate cut. Silver fell below $31 per ounce, pressured by weak Chinese demand. Treasury yields rose, with the ten-year at 4.38% and two-year at 4.22%.

Japan GDP (QoQ) (Q3)

Japan's GDP grew 0.3% in Q3 2024, beating the 0.2% forecast, after a revised 0.5% rise in Q2. Business investment fell 0.1%, less than expected, and net trade dragged GDP by 0.2 points, better than the 0.4-point forecast. Exports grew 1.1% and imports 1.8%, both slower than in Q2. Private consumption rose 0.7%, supported by wages, while government spending increased just 0.1%.

RBA Interest Rate Decision (Dec)

The RBA kept its cash rate at 4.35% for the ninth consecutive meeting, as expected. While headline inflation has eased, underlying inflation remains elevated and is not projected to hit the 2-3% target until 2026. Economic data aligns with forecasts, though household consumption recovery may be slow, impacting growth and the labor market. The rate on Exchange Settlement balances remains at 4.25%.

German CPI (MoM) (Nov)

Germany's inflation rose to 2.2% in November from 2.0% in October, driven by higher service costs. Energy prices continued to ease inflation but less than before. Month-on-month, consumer prices fell 0.2%.

U.S. CPI

In November, the CPI-U rose 0.3%, following four months of 0.2% increases, with an annual rise of 2.7%. Shelter rose 0.3%, contributing 40% of the monthly increase. Food prices rose 0.4%, with food at home up 0.5% and food away from home up 0.3%. The energy index rose 0.2% after no change in October. The core index, excluding food and energy, increased 0.3% for the month and 3.3% year-over-year. Energy fell 3.2%, and food rose 2.4% over the past year.

BoC Interest Rate Decision

The Bank of Canada cut its key rate by 50 basis points in December, totaling a 175-point reduction from a 5% peak. Policymakers signaled no further aggressive cuts, citing 1% Q3 GDP growth below expectations and risks to Q4 growth. Consumer spending exceeded forecasts, and inflation is projected to stay near 2%, though potential US tariffs add uncertainty.

SNB Interest Rate Decision (Q4)

The SNB cut its key rate by 50 basis points to 0.5%, exceeding expectations of 25 points. This fourth consecutive cut, the largest since 2015, brings rates to their lowest since November 2022. Inflation fell from 1.1% in August to 0.7% in November and is projected to average 1.1% in 2024, 0.3% in 2025, and 0.8% in 2026. GDP growth is forecast at 1% in 2024, rising to 1-1.5% in 2025, but risks include rising unemployment, slower production, and geopolitical uncertainties.

ECB Interest Rate Decision (Dec)

The ECB cut key interest rates by 25 basis points, citing progress in disinflation and improved policy transmission. Inflation is forecast to average 2.4% in 2024, 2.1% in 2025, and stabilize near 2% by 2026-2027. Core inflation, excluding energy and food, is projected at 2.9% in 2024 and 1.9% by 2026-2027.

Economic growth is expected at 0.7% in 2024, rising to 1.4% in 2026, driven by higher incomes and investment. Tight financing conditions persist but are easing with recent rate cuts. The ECB remains committed to a data-driven approach to maintain its 2% inflation target.

Initial Jobless Claims

For the week ending December 7, initial jobless claims rose by 17,000 to 242,000, with the prior week revised up to 225,000. The 4-week average increased by 5,750 to 224,250.

For the week ending November 30, the insured unemployment rate held at 1.2%, with insured unemployment rising by 15,000 to 1,886,000. The 4-week average increased by 3,500 to 1,888,000, the highest since November 2021.

PPI (MoM) (Nov)

The Producer Price Index (PPI) rose 0.4% in November, following increases of 0.3% in October and 0.2% in September. Annually, the unadjusted PPI increased 3.0%, the largest since February 2023's 4.7%.

Nearly 60% of November's increase came from a 0.7% rise in goods, while services rose 0.2%. Excluding food, energy, and trade services, the index edged up 0.1% in November and 3.5% over the year.

UK GDP (MoM) (Oct)

The UK economy grew 0.1% quarter-on-quarter in Q3 2024, down from 0.5% in Q2 and below the 0.2% forecast. Services rose 0.1%, driven by 0.7% growth in professional activities and 0.6% in trade. Construction grew 0.8%, while production fell 0.2% due to a 2.7% drop in energy supply. 

Net trade contributed positively as exports fell 0.2% and imports dropped 1.5%. Household spending rose 0.5%, business investment increased 1.2%, and government consumption grew 0.6%. Year-on-year, the economy grew 1%, up from 0.7% in Q2.

Currencies

The dollar index rose above 107, gaining 1% for the week, driven by expectations of a 25-basis point Fed rate cut and strong November PPI data. The euro weakened after the ECB opted for a 25-basis point cut, while the pound hit a six-month low on weak growth data. Markets expect three Bank of England rate cuts in 2024.

The yuan ended flat after China’s Central Economic Work Conference signaled expansive fiscal and monetary policies but left investors uncertain. The Australian dollar fell as unemployment dropped to 3.9%, and employment rose by 35,600, reducing the likelihood of a February RBA rate cut to 50%. The RBA held rates at 4.35% but leaned dovish.

The Swiss Franc dropped to 0.89 per USD after a surprise 50-basis point SNB rate cut, the largest in a decade, as inflation fell to 0.7% in November. Swiss GDP growth remained weak in Q3.

Commodities

Gold rose nearly 1% this week as mixed U.S. inflation data and jobless claims boosted expectations of a December Fed rate cut, with a 93% chance of a 25-basis point cut, per CBOT. Investors await the Fed's December 17-18 meeting and Chair Powell’s insights on 2025 policy. U.S. Import Prices rose slightly, while Export Prices fell in November.

Silver dropped below $31, down from last week's $32 high, pressured by weak Chinese demand despite dovish central bank actions. Concerns include China's yuan devaluation, loosening monetary policy, and solar panel overcapacity, which may limit silver demand.

Equities

Last week, stock indices showed mixed results. The Nasdaq closed slightly higher, while the S&P fell nearly 1%, and the Dow dropped 1.7%. Nvidia led declines with an 8% drop, followed by Intel (-3%) and Cisco (-2.5%). Google and Tesla gained 10%, while Amazon rose 3%.