Market Week Ahead: Gold Regains $2k, GBP/USD, EUR/USD Rally as USD Slides

The Federal Reserve is set to implement a series of interest rate cuts next week, according to the latest Fed ‘dot plot’, with three 25bp moves seen in 2024, as the US central bank acknowledges that economic growth is likely to weaken going forward. Financial markets however are pricing in a more aggressive set of rate cuts with six 25bp moves seen next, with the first cut expected in late March.

In contrast to the Fed’s dovish pivot, the Bank of England and the European Central Bank both held their hawkish outlooks, despite prior expectations that both may gently ease back from their ongoing restrictive stance. Expectations of a series of rate cuts by both central banks next year were paired back but still point to much lower rates in 2024.

Equity markets continue to ride the wave of optimism with US indices hitting multi-year and all-time highs while in Europe the DAX printed a fresh all-time high. Positive risk sentiment continues to power the equity bull run although as we enter the final week before the Christmas/New Year break, volume turns sharply lower and risk appetite will likely wain.

There are quite a few high-impact economic data releases on the calendar next week with UK and US inflation reports and the Bank of Japan policy meeting the standouts.

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The Bank of England this week reiterated their battle against inflation is far from over, leaving Sterling propped up by higher-for-longer rate expectations.

A rather hawkish ECB statement probably sits somewhere between the BoE and the Dovish Fed, keeping the euro supported. What is likely to drive euro pairs next week?

Gold and silver turned early losses into respectable gains at the end of the week, driven by a dovish Federal Reserve outlook for the coming year.

The November U.S. PCE report will be key for the U.S. dollar in the short term. Weaker-than-expected numbers could reinforce the greenback's recent decline, but strong numbers could trigger a bullish reversal.