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Gold Prices and Currency Trends
Gold prices have surged to two-month highs, surpassing $4,260, driven by expectations of a Federal Reserve rate cut. Meanwhile, GBP/USD rose to about 1.3270 due to predictions of a dovish Fed, while EUR/USD reached three-week highs near 1.1650 ahead of US PMI data.
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As we enter December, the US Dollar is under pressure. Futures markets now indicate over an 85% chance of a 25-basis-point rate cut at the Fed’s meeting later this month. This follows a weaker-than-expected Non-Farm Payrolls report and core inflation data coming closer to the Fed’s target.
Given this situation, we expect EUR/USD to continue rising, as it tests three-week highs near 1.1650. Call options with strike prices above 1.1700 may offer good risk-reward opportunities in the weeks ahead. While Eurozone manufacturing data has been mixed, the services sector has shown surprising strength, supporting the Euro.
GBP/USD and Gold Forecast
The same trend is seen in GBP/USD, which remains steady around 1.3270. This is more about a weak Dollar than a strong Sterling, as the Bank of England is likely to keep rates stable through winter. This difference in policy should maintain support for the Pound over the Dollar.
Gold is also on the rise, clearing the $4,260 level to its highest in two months. Lower US interest rates have driven real yields down, making non-yielding Gold an attractive asset for traders. A similar setup occurred before the Fed’s policy change in late 2023, leading to a significant rally in Gold.
The main risk to this outlook is the upcoming US ISM PMI data. A surprisingly strong report could quickly alter expectations for a December rate cut and lead to a sharp rebound in the Dollar. Traders should consider protective puts on major currency pairs as a safeguard against this possibility.
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