Central Banks signal cuts, gold volatility to surge year end

December 15, 2024 (MLN): Three significant central banks lowered their interest rates last week. The Bank of Canada (BOC) cut its interest rate by 50 basis points.

In an indication that more rate cuts may occur in 2025, the European Central Bank (ECB) lowered its deposit rate by 25 basis points to 3%. 

In yet another unexpected decision, the Swiss National Bank (SNB) lowered its interest rate by 50 basis points due to lower inflation, compared to the market's 25 basis point prediction of 0.50%.

This week, the Federal Reserve is anticipated to lower interest rates by 25 basis points. It may be a hawkish rate cut, however, considering the release of last week's higher producer price index readings and the anticipated tariff concerns Donald Trump has, particularly with Europe and China. 

For future guidance, everyone will be watching the Federal Reserve Chairman's remarks.

While Bank of Japan (BOJ) policymakers are meeting on Thursday to decide on its next interest rate policy.

Later in the evening on Thursday, Bank of England (BOE) is scheduled to make its interest rate decision. The UK economy continues to face challenges. The economy's contraction was evident in its October GDP report. 

However, BOE may decide not to lower its interest rate because of its higher long-term inflation outlook. It is therefore likely to stay unchanged. 

Meanwhile, the gold market is still experiencing major swings as the year draws to a close. It traded in a $ 85 band last week. The news that the Chinese Central Bank buying gold for its reserves was the primary driver of the spike. While, Trump's ongoing threat of tariffs and Thursday's higher producer prices index, however, put pressure on gold.

The market, in my opinion, will thin out and gold volatility will rise during the final two weeks of December. 

Even though there is a risk of a decline in gold prices, buying interest will still occasionally reappear.

#GOLD @ $ 2648- Initially, I am expecting gold to move up to test $ 2655-60 levels before running out.  However, the risk of making further gains towards $ 2695 would only rise if $ 2678 gives up, which is less likely to happen. After the brief up move there is more risk of downside test and if support $ 2628 gives away, it may decline further to test $ 2618 levels.

#EURO @ 1.0502- If 1.0380 doesn't hold, Euro will challenge the important support level of 1.0310. Strong resistance, however, is located between 1.0590-00 on the upside. Only Break poses a 1.0640 risk.

#GBP @ 1.2615-There will still be a downside risk unless Cable can move over 1.2750. A break of 1.2510 will lead it to drop further, down towards 1.2460 levels.

#JPY @ 153.60- USD must break 154.60 in order to reach 155.40. However, a test of 151.50 levels will be triggered by a down side breach of 152.20.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.