The market experienced significant volatility at the start of the European trading session on Friday (January 31, 2025), with potential for further increases later tonight. This is largely due to the release of inflation data based on the Personal Consumption Expenditures (PCE) from the United States, which serves as a benchmark for The Fed’s interest rate decisions.
Here is the data from Trading Central:
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- German inflation at 20:00 WIB (year-on-year/January); forecast 2.6% versus a previous 2.6%.
- US PCE at 20:30 WIB (year-on-year/December); forecast 2.6% against a prior 2.4%.
- Core PCE in the US at 20:30 WIB (year-on-year/December); forecast 2.8% compared to the previous 2.8%.
GOLD
As projected in the previous Macro Overview, the price of Gold (XAUUSD) continued to rise at the beginning of European trading. For the first time in history, Gold has crossed the US$ 2,800 mark per troy ounce.
Earlier today, Gold experienced an increase of over US$ 34 following the release of US fourth quarter 2024 economic growth data (Gross Domestic Product/GDP), which reported a quarterly annualized growth of 2.3%, falling short of the forecast set by Trading Central at 3% and the prior quarter’s 3.1%.
This data opens up opportunities for The Fed to potentially cut interest rates at least twice this year.
If the PCE inflation data released tonight comes in lower than expected, the likelihood of interest rate cuts by The Fed will increase, creating a more positive sentiment towards Gold.
OIL
Oil prices (CLS10) declined to US$ 72.50 per barrel after briefly rising to US$ 73.47 earlier this morning. As noted in the previous Macro Overview, Oil faced downward pressure due to potential supply increases in the United States and weak demand from China.
The disappointing GDP figures from Germany and the euro zone continue to exert pressure on Oil prices, a trend that is expected to persist through tonight’s trading.
EURUSD
Data from Germany today revealed continued weakness in the economic conditions. Retail sales growth was reported below expectations while unemployment rates were on the rise.
Should tonight’s German inflation data also come in lower than anticipated, EURUSD may face further downward pressure.
GBPUSD
GBPUSD has been trading within a volatile range of 1.24006 – 1.24395 up to the start of the European session. In the absence of significant economic data releases from the UK, GBPUSD’s movements are likely to mimic those of EURUSD.
Indicators of deteriorating economic conditions in Europe are expected to affect the UK as well, especially given the current challenges in the UK economy, meaning GBPUSD will likely follow EURUSD’s downward trend.
USDJPY
USDJPY pulled back from gains after reaching a daily high of 154.931. As mentioned earlier, the yen is experiencing positive sentiment following comments from the deputy governor of the Bank of Japan (BoJ), Ryozo Himino, indicating that interest rates will continue to rise if economic conditions and inflation align with BoJ projections.
This suggests that if tonight’s US PCE inflation data comes in below estimates, USDJPY may face additional downward pressure.
Nasdaq
The Nasdaq maintains its upward trend, hovering near a daily high of 21,806. Compared to the closing on Thursday, the Nasdaq has gained nearly 200 index points.
This increase has been propelled by better-than-expected earnings reports from Apple, which recorded a gross margin of 46.9%, setting a new record.
As the world’s largest company by market capitalization, Apple is providing positive sentiment to the Nasdaq. This sentiment may strengthen if the US PCE inflation data released tonight falls below expectations.
