The past week featured several pivotal decisions from major central banks and high-level geopolitical discussions. Policy moves by the Federal Reserve, the Bank of Canada, and the European Central Bank—along with the US-China leaders' summit—served as primary catalysts in global financial markets, significantly influencing currency trends and precious metals prices.
Key factors:
🔹Fed rate cut: The FOMC lowered interest rates by 25 basis points to the 3.75%–4.00% range. That being said, Chair Powell introduced uncertainty around the December meeting, which markets interpreted as tougher rhetoric.
🔹End of QT: The Fed announced the end of its quantitative tightening program starting December 1. Reinvesting in Treasuries is expected to ease pressure on bank reserves.
🔹US-China summit: The Trump-Xi meeting in South Korea ended with a phased rollback of sanctions and tariffs—an outcome seen as a positive factor by investors.
🔹Dissent within FOMC: Jeffrey Schmidt voted to keep rates unchanged, signaling a growing internal preference for a policy pause.
🔹Data uncertainty: Powell acknowledged that incomplete economic data—potentially due to a government shutdown—complicates policy assessment and demands caution.
Bottom line: The USD Index climbed past 99.38, strengthening against key currencies. Market expectations for further Fed cuts were pushed back.
Key factors:
🔹BoC decision: The Bank of Canada cut its key interest rate by 25 basis points to 2.25%, matching market expectations.
🔹Central Bank guidance: Policymakers hinted at a potential pause in further cuts, suggesting no additional moves unless major economic disruptions occur. No rate changes are projected until spring.
🔹Economic forecasts: Inflation is expected to reach 2.2% by the end of 2026, while GDP growth remains on the weaker side.
Bottom line: The impact on the Canadian dollar was largely neutral with a mild bullish tilt, leading to a modest decline in the USD/CAD exchange rate.
Key factors:
🔹ECB decision: The European Central Bank held the deposit rate steady at 2% for the third month in a row, in line with market expectations.
🔹Economic indicators: German unemployment stayed flat, and the number of unemployed fell. Q3 GDP growth was flat in Germany but beat expectations in the Eurozone at 0.2%. Inflation remains near the ECB’s 2% target.
🔹Fed impact: Hawkish signals from the Federal Reserve boosted the US dollar, adding downward pressure on the euro.
Bottom line: Even with stable ECB policy and largely positive data, the euro weakened further against the stronger USD.
Key factors:
🔹BoJ policy: The Bank of Japan maintained its ultra-loose monetary stance, citing persistent uncertainty in the U.S. economy and challenges in projecting wage growth trends.
🔹Governor Ueda’s dovish comments: BoJ Governor Ueda avoided giving clear forward statements, which markets interpreted as dovish, contributing to yen weakness.
🔹Finance Ministry intervention: Japan’s Finance Minister Satsuki Katayama expressed concern about rapid, one-sided moves in the yen, signaling the first official warning and prompting a brief rebound.
🔹Monetary policy divergence: The growing gap between the BoJ’s soft policy approach and the Fed’s tightening continues to pressure the yen.
Bottom line: The yen dropped to an eight-month low against the U.S. dollar, but the Finance Ministry’s comments highlighted increased government sensitivity to the currency’s sharp depreciation.
Key factors:
🔹Profit-taking: Following a surge to new all-time highs near $4,380 per ounce, investors locked in gains, prompting a price decline.
🔹Stronger USD and Fed rhetoric: A firmer U.S. dollar and the Fed’s hawkish rhetoric reduced gold’s attractiveness as a non-yielding alternative asset.
🔹Rising treasury yields: The approach of 10-year U.S. Treasury yields toward 4% led to increased demand for government bonds, weighing on gold prices.
🔹Fundamental support remains: Global inflation remains elevated, geopolitical risks persist (including Middle East tensions and trade frictions), and central banks—particularly in China, India, and Turkey—continue to accumulate gold, which contributes to a strong long-term support.
Bottom line: In the span of a week, gold declined approximately 8% from recent highs, stabilizing around $3,964 per ounce. Despite a near-term correction, long-term fundamentals continue to position gold as a reliable safe-haven asset.
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