Market Drivers; US Session

Markets Brace for Fed’s Rate Decision

The US Dollar dipped slightly on Monday as investors turned their focus towards the Federal Reserve’s upcoming rate decision. While markets widely anticipate a third consecutive quarter-point rate cut, cautious optimism prevails.
Key Developments:

US Dollar: The DXY retreated marginally, pausing its recent upward trend as investors await the Fed’s decision.

US Economy: December’s PMI data painted a mixed picture, with Services PMI surging to multi-year highs while Manufacturing PMI contracted sharply. Retail Sales data due on Tuesday may be overshadowed by the Fed’s rate decision.

Euro: EUR/USD traded near 1.0500, largely unaffected by ECB officials’ comments. European PMI data, while better than expected, still indicated a sluggish Services sector.

The EUR/AUD consolidates below 1.6500 for the second consecutive day and trades at 1.6499, virtually unchanged. The Eurozone is experiencing turbulent moments amid political issues in France and Germany, two of the bloc’s largest economies. Although the Euro holds firm, the end of the year keeps traders from opening fresh bets against the shared currency.

Pound Sterling: GBP/USD rebounded, gaining 0.55% as a slight uptick in UK Manufacturing PMI offset a decline in Services PMI. Investors now look towards UK wage and labor data due on Tuesday.

Japanese Yen: USD/JPY climbed above 154.00. While the Japanese economic calendar is relatively quiet, the Bank of Japan’s rate decision on Thursday remains a key focus.
As the Fed’s decision looms large, market participants will be closely monitoring the central bank’s guidance on future rate moves and its assessment of the economic outlook.

Gold prices rose by 0.28% during the North American session, awaiting the Federal Open Market Committee (FOMC) decision. The XAU/USD trades at $2,643, above its opening price but off the day’s highs. The US economic docket is light with the release of S&P Global Flash PMIs for December, which showed mixed business activity in the manufacturing sector.

The Greenback rose 0.07% to 107.01, while Bullion dipped from daily highs of $2,664. The Federal Reserve will meet on December 17 and 18, with estimates suggesting a 25 basis point cut in interest rates. Gold prices tend to rise in lower rate environments and with higher geopolitical risk, which have subsided in recent times. The US economic docket will include Retail Sales, Industrial Production, the FOMC policy decision, and the core Personal Consumption Expenditures (PCE) Price Index.

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