Gold hovers below monthly highs with US PPI, Jobless Claims on focus

LONDON (December 12) Gold (XAU/USD) is hesitating below a one-month high at $2,720 on Thursday’s European session following a sharp rally over the last three days. The rebound on US Treasury yields, with the benchmark 10-year yield more than 15 pips above last week’s lows, is weighing on the precious metal’s rally.

However, downside attempts remain limited, with investors nearly fully pricing a 25 basis points (bps) interest-rate cut by the Federal Reserve (Fed) next week. The hot US Consumer Price Index (CPI) report did not scratch investors’ hopes of further monetary easing, although the outlook of a shallower easing cycle in 2025 underpins the US Dollar (USD).

Daily digest market movers: Gold rally stalls with the Dollar steady near two-week highs

• US consumer prices grew at their fastest pace in seven months,  0.3% up in November compared with the previous month and 2.6% year-on-year, from 0.2% and 2.6%, respectively. The core CPI remained steady at 0.3% monthly and 3.3% from November last year.
   
• Market expectations of a 25 bps Fed rate cut on December 18 increased to 98% from 85% before the CPI release and around 75% last week, as shown by the CME Group’s Fed Watch Tool.
   
• Futures markets are increasingly pricing the chance of two additional rate cuts in 2025, instead of three as previously thought.
   
• Strong US macroeconomic data and expectations of higher inflation stemming from Donald Trump’s policies are forcing investors to scale back Fed easing prospects, and pushing US yields higher. 
   
• The yield of the benchmark 1-year Treasury note has reached 4.30% from 4.12% lows last week after having rallied for four consecutive days. This provides important support to the Greenback.
   
• The Swiss National Bank (SNB) cut interest rates by 50 basis points against market expectations of a 25 bps cut. The European Central Bank (ECB) is next with the market consensus anticipating a quarter-point interest-rate cut. Another jumbo cut would rattle markets and send the US Dollar higher.

FXStreet