The market's extreme speculation on the result of the Federal Reserve's interest rate meeting may be a trap! Pay attention to the opportunity for a short-term rebound in gold, silver and non-US currencies when all the bad news has come out.
During Christmas and the New Year, this week's Federal Reserve's decision was in line with the expectations in the UK. The price of gold and the S&P also weakened as analyzed in the UK. However, it is believed that the market situation may enter an environment where "all the bad news has come out in a short cycle". As the inflation in non-US economies rebounds, non-US central banks may also enter a stage of waiting and seeing for the time being. After accumulating a large amount of decline, non-US currencies may have a certain rebound opportunity. Especially when the Bank of Japan and the Bank of England are not as hawkish as the market expected. Although it's Christmas in the new week, the sudden risks of geopolitics cannot be ignored. And it is worth paying attention to whether the oversold gold, silver and oil will attract funds at the end of the year and during the Spring Festival.
Key Points of the Federal Reserve's December Decision
The Federal Reserve announced a 0.25 percentage point cut in interest rates and adjusted the benchmark interest rate to the range of 4.25% - 4.5%. This is the third interest rate cut this year. There are six major points in this meeting: First, the interest rate cut was passed by a vote of 11 to 1. The president of the Federal Reserve Bank of Cleveland, Loretta Mester, opposed it and preferred to maintain the interest rate unchanged. The statement emphasized that the future magnitude and timing of interest rate cuts will be carefully evaluated according to inflation and economic data. Second, the expectation of interest rate cuts next year has been halved. The dot plot shows that there will be only two 0.25 percentage point cuts next year to 3.9%, lower than the prediction of four 0.25 percentage point cuts in September, and it is expected that the interest rate will be 3.4% in 2025. Third, Chairman Jerome Powell said that the magnitude of interest rate cuts will be adjusted according to data, and the policy is close to neutral, and there may be a short-term pause in interest rate cuts. Fourth, it is expected that the core PCE inflation rate will be 2.5% in 2025, and the GDP growth rate will be 2.1%, and the job market is resilient. Fifth, officials have preliminarily evaluated the potential impact of the tariff and fiscal policies of the elected President Donald Trump. However, it is too early to give a "definite answer" on the impact of the tariff proposal on inflation at present.
The Extreme Speculation on the Strong Dollar May Be a Trap in the Market
The market's speculation on the hawkish stance of the Federal Reserve will have various impacts: The dollar may continue to remain strong, and gold and silver may continue to be under pressure; non-US currencies such as the euro and the Canadian dollar will experience significant weakness. The euro shows a large downward flag pattern, and the US dollar against the Canadian dollar shows a large upward flag pattern. Due to the strong dollar and the continuation of the high-interest environment, the S&P may continue to have a large pullback. The USD/JPY is still in the spotlight. If the Bank of Japan fails to convince the market that its currency will strengthen, the USD/JPY may test 160 again. However, there is a lack of further data support for such speculation. At present, the result of the Federal Reserve's interest rate meeting does not support such strength. And if the Federal Reserve maintains the interest rate unchanged or takes steps to hit the US economy, it will not be as continuously strong as the market imagines.
Pay Attention to the Opportunity When All the Bad News Has Come Out
The research department in the UK accurately predicted the result of this Federal Reserve's action. Its interpretation of the information after the announcement is as follows: The result of this Federal Reserve's interest rate meeting is in line with the market's expectations. There is currently biased speculation in the market. Of course, when the sentiment comes, just follow the trend. Comparing the views on inferring the future interest rate cut space of the Federal Reserve between this time and the last time through the dot plot is rather extreme. The UK believes that the current decision of the Federal Reserve has little reference value for the future because Donald Trump has not yet taken office. Only after he introduces more explicit policies can the Federal Reserve make a more accurate decision. The content of this speech is not as hawkish as the media said, but rather ambiguous and full of the art of language, mostly for short-term speculation. In the future market, more attention should be paid to the follow-up directions of the Bank of Japan and non-US central banks, which will bring short-term profit-taking for the strong dollar. As for the current market correction, the overall market trend is not a big breakout but just an emotional adjustment.
In the new week, since it is the Christmas holiday, the market focus is expected to be weak. However, because of this, there is a lack of a focus that will further hit non-US currencies, gold and silver. Among them, the attitudes of the Federal Reserve and non-US officials are worth noting. Pay attention to whether funds will be attracted to buy on dips in gold, silver and non-US currencies after they have accumulated a large amount of decline. At the same time, if the minutes of the Bank of Japan's meeting imply the opportunity for an interest rate hike, it will also help non-US currencies rebound and support gold and silver.
The Canadian Dollar and the Euro Are Expected to Continue to Face Pressure
In the past quarter, the UK has repeatedly reminded of the risks of the deviation in value of the euro and the Canadian dollar. However, after accumulating a large amount of decline, the euro and the Canadian dollar may still not have reached the bottom, mainly because they also face a lot of negative pressures. Canada is a trading partner of the United States, but Donald Trump may impose further tariffs on Canada's trade. Canada's economy has declined significantly recently. In addition, the wave of resignations from the Trudeau cabinet has also hit Canada's political stability, thus hitting the Canadian dollar. At present, Canada's general election will be held in the first quarter of 2025, and it is expected that political and economic pressures will continue to haunt the Canadian dollar. The euro area is also facing the pressure of Donald Trump's tariffs. France and Germany are also facing parliamentary elections. The German chancellor is at risk of stepping down. As the two largest economies in the European Union, the new governments after the elections may also increase government debt, which will naturally hit the prospects of the euro. In addition, the opportunity for the European Central Bank to continue to cut interest rates has increased, and the Middle East and Ukraine events have also hit the stability of energy and food in Europe, which also puts pressure on the euro. In other words, even if the dollar has an opportunity for profit-taking in the near cycle, it may not be of much help to the euro and the Canadian dollar. Among non-US currencies, the Japanese yen and the British pound may have relatively larger rebound spaces, but it still depends on the attitudes of future central banks and the latest data.
The Geopolitical Situation Cannot Be Ignored
The market is very concerned about the risks of the outbreak of civil war in Syria, the violation of the ceasefire between Israel and Palestine, and the escalation of the Ukraine-Russia crisis. If these occur, they are expected to have an important short-term stimulus on the prices of gold and oil.
By Wayne Lai
A senior financial practitioner in Hong Kong. He has served well-known financial public relations firms, financial media, and investment banks. Past service targets include Societe Generale, CMC Markets, KVB Kunlun, etc. At the same time, he is a part-time lecturer at colleges and universities, a regular guest of financial media, and an author of financial readings. He has represented Hong Kong to attend world financial forums many times. Currently, he is the research and marketing director of Royal Capital. Over the years, he has won multiple industry awards for service institutions.
Disclaimer: The content of this article is for reference only and does not constitute an offer, recommendation, or inducement for any person to submit an offer to buy or subscribe for any securities. The price of structured products can rise or fall sharply, and investors may suffer total losses. Past performance does not reflect future performance. Before investing, investors should understand the risks and consult professional advisors and refer to relevant listing documents. Nothing in this article constitutes investment, legal, accounting or tax advice, and there is no statement that any investment or strategy is suitable or in line with your individual circumstances.
During Christmas and the New Year, this week's Federal Reserve's decision was in line with the expectations in the UK. The price of gold and the S&P also weakened as analyzed in the UK. However, it is believed that the market situation may enter an environment where "all the bad news has come out in a short cycle". As the inflation in non-US economies rebounds, non-US central banks may also enter a stage of waiting and seeing for the time being. After accumulating a large amount of decline, non-US currencies may have a certain rebound opportunity. Especially when the Bank of Japan and the Bank of England are not as hawkish as the market expected. Although it's Christmas in the new week, the sudden risks of geopolitics cannot be ignored. And it is worth paying attention to whether the oversold gold, silver and oil will attract funds at the end of the year and during the Spring Festival.
Key Points of the Federal Reserve's December Decision
The Federal Reserve announced a 0.25 percentage point cut in interest rates and adjusted the benchmark interest rate to the range of 4.25% - 4.5%. This is the third interest rate cut this year. There are six major points in this meeting: First, the interest rate cut was passed by a vote of 11 to 1. The president of the Federal Reserve Bank of Cleveland, Loretta Mester, opposed it and preferred to maintain the interest rate unchanged. The statement emphasized that the future magnitude and timing of interest rate cuts will be carefully evaluated according to inflation and economic data. Second, the expectation of interest rate cuts next year has been halved. The dot plot shows that there will be only two 0.25 percentage point cuts next year to 3.9%, lower than the prediction of four 0.25 percentage point cuts in September, and it is expected that the interest rate will be 3.4% in 2025. Third, Chairman Jerome Powell said that the magnitude of interest rate cuts will be adjusted according to data, and the policy is close to neutral, and there may be a short-term pause in interest rate cuts. Fourth, it is expected that the core PCE inflation rate will be 2.5% in 2025, and the GDP growth rate will be 2.1%, and the job market is resilient. Fifth, officials have preliminarily evaluated the potential impact of the tariff and fiscal policies of the elected President Donald Trump. However, it is too early to give a "definite answer" on the impact of the tariff proposal on inflation at present.
The Extreme Speculation on the Strong Dollar May Be a Trap in the Market
The market's speculation on the hawkish stance of the Federal Reserve will have various impacts: The dollar may continue to remain strong, and gold and silver may continue to be under pressure; non-US currencies such as the euro and the Canadian dollar will experience significant weakness. The euro shows a large downward flag pattern, and the US dollar against the Canadian dollar shows a large upward flag pattern. Due to the strong dollar and the continuation of the high-interest environment, the S&P may continue to have a large pullback. The USD/JPY is still in the spotlight. If the Bank of Japan fails to convince the market that its currency will strengthen, the USD/JPY may test 160 again. However, there is a lack of further data support for such speculation. At present, the result of the Federal Reserve's interest rate meeting does not support such strength. And if the Federal Reserve maintains the interest rate unchanged or takes steps to hit the US economy, it will not be as continuously strong as the market imagines.
Pay Attention to the Opportunity When All the Bad News Has Come Out
The research department in the UK accurately predicted the result of this Federal Reserve's action. Its interpretation of the information after the announcement is as follows: The result of this Federal Reserve's interest rate meeting is in line with the market's expectations. There is currently biased speculation in the market. Of course, when the sentiment comes, just follow the trend. Comparing the views on inferring the future interest rate cut space of the Federal Reserve between this time and the last time through the dot plot is rather extreme. The UK believes that the current decision of the Federal Reserve has little reference value for the future because Donald Trump has not yet taken office. Only after he introduces more explicit policies can the Federal Reserve make a more accurate decision. The content of this speech is not as hawkish as the media said, but rather ambiguous and full of the art of language, mostly for short-term speculation. In the future market, more attention should be paid to the follow-up directions of the Bank of Japan and non-US central banks, which will bring short-term profit-taking for the strong dollar. As for the current market correction, the overall market trend is not a big breakout but just an emotional adjustment.
In the new week, since it is the Christmas holiday, the market focus is expected to be weak. However, because of this, there is a lack of a focus that will further hit non-US currencies, gold and silver. Among them, the attitudes of the Federal Reserve and non-US officials are worth noting. Pay attention to whether funds will be attracted to buy on dips in gold, silver and non-US currencies after they have accumulated a large amount of decline. At the same time, if the minutes of the Bank of Japan's meeting imply the opportunity for an interest rate hike, it will also help non-US currencies rebound and support gold and silver.
The Canadian Dollar and the Euro Are Expected to Continue to Face Pressure
In the past quarter, the UK has repeatedly reminded of the risks of the deviation in value of the euro and the Canadian dollar. However, after accumulating a large amount of decline, the euro and the Canadian dollar may still not have reached the bottom, mainly because they also face a lot of negative pressures. Canada is a trading partner of the United States, but Donald Trump may impose further tariffs on Canada's trade. Canada's economy has declined significantly recently. In addition, the wave of resignations from the Trudeau cabinet has also hit Canada's political stability, thus hitting the Canadian dollar. At present, Canada's general election will be held in the first quarter of 2025, and it is expected that political and economic pressures will continue to haunt the Canadian dollar. The euro area is also facing the pressure of Donald Trump's tariffs. France and Germany are also facing parliamentary elections. The German chancellor is at risk of stepping down. As the two largest economies in the European Union, the new governments after the elections may also increase government debt, which will naturally hit the prospects of the euro. In addition, the opportunity for the European Central Bank to continue to cut interest rates has increased, and the Middle East and Ukraine events have also hit the stability of energy and food in Europe, which also puts pressure on the euro. In other words, even if the dollar has an opportunity for profit-taking in the near cycle, it may not be of much help to the euro and the Canadian dollar. Among non-US currencies, the Japanese yen and the British pound may have relatively larger rebound spaces, but it still depends on the attitudes of future central banks and the latest data.
The Geopolitical Situation Cannot Be Ignored
The market is very concerned about the risks of the outbreak of civil war in Syria, the violation of the ceasefire between Israel and Palestine, and the escalation of the Ukraine-Russia crisis. If these occur, they are expected to have an important short-term stimulus on the prices of gold and oil.
By Wayne Lai
A senior financial practitioner in Hong Kong. He has served well-known financial public relations firms, financial media, and investment banks. Past service targets include Societe Generale, CMC Markets, KVB Kunlun, etc. At the same time, he is a part-time lecturer at colleges and universities, a regular guest of financial media, and an author of financial readings. He has represented Hong Kong to attend world financial forums many times. Currently, he is the research and marketing director of Royal Capital. Over the years, he has won multiple industry awards for service institutions.
Disclaimer: The content of this article is for reference only and does not constitute an offer, recommendation, or inducement for any person to submit an offer to buy or subscribe for any securities. The price of structured products can rise or fall sharply, and investors may suffer total losses. Past performance does not reflect future performance. Before investing, investors should understand the risks and consult professional advisors and refer to relevant listing documents. Nothing in this article constitutes investment, legal, accounting or tax advice, and there is no statement that any investment or strategy is suitable or in line with your individual circumstances.
