Monetary policy paths will diverge. Analysis of short-term trends of spot gold, silver, crude oil and foreign exchange on December 18

Global market overview

1. European and American market conditions

The three major U.S. stock index futures all rose, with the Dow futures rising 0.12%, the S&P 500 futures rising 0.40%, and the Nasdaq futures rising 0.76%. Germany's DAX index rose 0.26%, Britain's FTSE 100 index rose 0.22%, France's CAC 40 index rose 0.21%, and the European Stoxx 50 index rose 0.38%.

2. Interpretation of market news

The path of monetary policy will diverge. The Canadian dollar is favored by institutions, and its strong performance is expected to continue until 2026

⑴ Institutional analysis points out that the Canadian dollar is ending the year with a strong momentum and has appreciated against all G10 currencies except the Swedish krona. ⑵The recent rebound of the Canadian dollar www.xmtraders.comprehensively reflects its better-than-expected economic data and the government’s clearer policy implementation path since the budget was announced in early November. ⑶ The agency believes that after the two countries’ monetary policies have remained in step for nearly a decade, the policy paths of the United States and Canada are expected to diverge in 2026. ⑷The divergent background of this monetary policy cycle is expected to continue to provide support for the Canadian dollar and support its appreciation prospects. ⑸ The agency sets the target for the US dollar against the Canadian dollar at 1.32 by the end of 2026, but also points out that the process of the exchange rate moving towards this level is unlikely to be linear, and may be accompanied by fluctuations.

Market Interpretation: The market is fully pricing in the Bank of England’s next interest rate cut being postponed to June, rather than April as previously expected

⑴ Analysts pointed out that the Bank of England’s interest rate cut decision itself is not a huge surprise, but the market reactionYing, however, prefers a "hawkish" interpretation. ⑵ After the announcement of the resolution, the market has reduced its bets on future interest rate cuts, and the next fully priced interest rate cut has been postponed to the June meeting instead of April as previously expected. ⑶ Analysts believe that if the pound rebounds as a result, it will be a www.xmtraders.completely predictable reaction, and the jump in British government bond yields also confirms this. ⑷ Some market participants had expected a 6-3 vote result, that is, more members supported an interest rate cut, but the actual slim majority of 5-4 weakened the dovish signal of the policy. ⑸ Nonetheless, analysts pointed out that inflation fell faster than the Bank of England expected, and its statement still sent a clear signal that bank interest rates may fall at a slightly faster pace, which opens the door to successive interest rate cuts in the future. ⑹ The core view is that once inflation is clearly on track to return to the 2% target, and a downward surprise accelerates this process, the Bank of England will be unwilling to tolerate economic growth continuing to be below potential levels, which forms the logical basis for further easing in the future.

The weak economy may force the central bank to "dove", with analysts expecting the final interest rate to point to 3%

⑴ Aberdeen Investment's deputy chief economist pointed out that the narrow majority vote of the Bank of England shows that many policymakers are still not fully convinced that inflation risks have been www.xmtraders.completely eliminated at the economic level. ⑵ However, he added that more rate cuts are expected in the future, given that the economy is expected to remain weak into next year and the recent budget contains a number of measures aimed at keeping overall inflation down. ⑶The economist predicts that the Bank of England's benchmark interest rate will eventually fall back to around 3% later next year. ⑷ This view is in contrast to the cautious signals released by the official, and represents the expectation of a part of the market that downward pressure on the economy will eventually force the central bank to adopt a more easing stance.

An expected interest rate cut, a hawkish background, and the Bank of England’s tightening heart is difficult to solve

⑴ Institutional economists pointed out that although the Bank of England’s decision to cut the key interest rate to 3.75% was widely expected, its internal hawkish tone was strong, and it was passed with a slim majority of 5 to 4. ⑵ There are continuing disagreements among policymakers, which is not surprising given the evidence that inflation will remain sticky in the www.xmtraders.coming months, which also suggests that it may take longer for inflation to return to the 2% target. ⑶ The agency predicts that the Bank of England will cut interest rates again at its next meeting in February next year, when a new set of economic forecasts may support its continued caution on how fast and how far interest rates can fall. ⑷After this, however, the agency expects the Bank of England to cut interest rates only once more in 2026. ⑸This outlook means that the market’s previous expectations for a radical easing cycle need to be revised, and the downward path of interest rates will be smoother and more limited than some optimistic expectations.

Policy changes, the Bank of England has taken a key step to cut interest rates, but the fog of "neutral interest rates" restricts future space

⑴ At the December monetary policy meeting, the Bank of England voted 5 to 4 to lower the benchmark interest rate by 25 basis points to 3.75%. This was the first interest rate cut since August, and the interest rate level dropped to a nearly three-year low. ⑵This interest rate cut decisionThis reflects the view of a majority of the www.xmtraders.committee that inflation is cooling rapidly enough to provide conditions for further easing in 2026. ⑶ However, the minutes of the meeting and Governor Bailey’s remarks showed that the central bank is highly cautious about the future policy path. ⑷ Bailey clearly pointed out that although interest rates are still on a gradual downward path, with each interest rate cut, how far they can go will become more uncertain. ⑸The central bank adopted new language, emphasizing that as interest rates gradually approach the "neutral interest rate" (that is, a level that neither stimulates nor suppresses the economy), future decisions on further easing will require more refined trade-offs. ⑹ This statement reveals the core concern within the central bank: balancing the downward trend of inflation with the uncertain neutral interest rate level, indicating that the pace of future interest rate cuts will be more cautious and data-dependent.

The Bank of England cut interest rates by 25 basis points as scheduled but hinted at a higher easing threshold in the future

⑴ The Bank of England implemented the 25 basis point interest rate cut widely expected by the market, but the Monetary Policy www.xmtraders.committee signaled that the "easy" part of the easing cycle was over, and the pound strengthened accordingly. ⑵ GBP/USD jumped 35 points after the resolution was announced. The market is digesting this suspenseful decision and a statement suggesting a higher threshold for interest rate cuts in 2026. ⑶ This interest rate cut reduces the benchmark interest rate from 4.00% to 3.75%, after a "wait-and-see" pause was adopted in November. ⑷The consensus expected vote was 5 to 4 in favor of an interest rate cut, and Governor Bailey turned to the interest rate cut camp. The rate cut was fully priced in and the results were in line with expectations. ⑸Yesterday’s consumer price index data was the main catalyst. The overall inflation rate dropped sharply to 3.2%, lower than market forecasts and the central bank's own expectations. ⑹The GDP data in October also unexpectedly contracted by 0.1%, the economic recovery was weaker than expected, and the unemployment rate has climbed to 5%. ⑺The central bank clearly stated that as interest rates approach neutral levels, further easing will become "more difficult to decide." ⑻ Bailey warned that "the space for future interest rate cuts is more limited" and that the road ahead cannot be accurately predicted. ⑼ The central bank also warned that inflation will temporarily rise this month due to increases in tobacco taxes and air ticket prices, and the overall inflation rate is expected to remain above the 2% target by the second quarter of 2026. ⑽ Voting result: 5 to 4. Bailey, Lombardelli, Taylor, Dhingra and Breeden voted for a rate cut; Green, Mann, Peale and Duggan voted to keep the rate unchanged. ⑾The staff forecast fourth-quarter GDP growth of 0.0%, down from the +0.3% forecast in November. ⑿The 2025 autumn budget is expected to reduce inflation by about 0.5 percentage points in April 2026, but increase it by 0.1-0.2 percentage points in 2027/2028. The data did not show a "rapid increase in spare capacity."

The inflation battle is not yet over, the Hungarian central bank remains hawkish, and the road to interest rate cuts is still thorny

⑴ The deputy governor of the Hungarian central bank said that the central bank is www.xmtraders.committed to achieving its inflation target, and it is still necessary to maintain a tight monetary policy stance. ⑵ He acknowledged that recent economic data has improved significantly and the central bank cannot ignore this positive change. ⑶ Specifically, he pointed out that the inputInflation has shown signs of improvement, while energy prices have fallen and deflationary effects are also occurring in consumer durables. ⑷ This statement means that although inflationary pressure has eased, the Hungarian central bank remains vigilant about the price outlook. The possibility of turning to easing policy in the short term is low, and the process of normalizing monetary policy will be gradual and cautious.

Liquidity tsunami, European Central Bank deposits surged, and the "barrier lake" of the banking system was hanging high

⑴ Daily liquidity data released by the European Central Bank on Thursday showed that financial institutions borrowed only 5 million euros through overnight lending facilities. ⑵At the same time, the scale of funds deposited in the European Central Bank's overnight deposit facility reached 247.9089 billion euros, a further increase from 246.524 billion euros the previous day. ⑶In addition, financial institutions’ current account holdings at the central bank amounted to 17.5773 billion euros. ⑷The sum of the huge fund stocks of overnight deposit facilities and current accounts far exceeds the negligible demand for overnight loans. This clearly reflects that the euro area banking system is being overwhelmed by excess liquidity. ⑸ This structural excess of liquidity continues to drive down short-term market interest rates and also highlights the long-term challenges faced by the European Central Bank in withdrawing excess liquidity from the financial system.

Trade undercurrents surge, Iranian www.xmtraders.companies issue procurement tenders, new trends in Asian agricultural trade

⑴ Traders said that Iranian Jahad Sabz www.xmtraders.company has issued a tender and plans to purchase 10,000 metric tons of rice from Pakistan. ⑵ The bidding documents show that the www.xmtraders.company is seeking to purchase type 1121 white basmati rice. ⑶The deadline for submitting price quotations for this tender is December 30. ⑷ International trade tenders for such specific www.xmtraders.commodities reflect the continued flow of agricultural product supply chains between regions. Even under the macro geopolitical background, basic www.xmtraders.commodity demand and trade activities are still going on.

The inflation alarm has not been eliminated, internal disagreements within the Federal Reserve, and risks and waves on the road to interest rate cuts

⑴ Although the inflation rate has fallen from highs, it continues to be higher than the Fed's 2% target. Policymakers hope to see it fall further, but concerns about the job market are affecting their policy weighings. ⑵ Federal Reserve Chairman Powell said that the impact of Trump’s tariff remarks on inflation is expected to be a relatively short-lived one-time change in price levels, but the Fed’s job is to prevent it from evolving into a sustained inflation problem. ⑶ New York Fed President Williams pointed out that data showed that trade policy has pushed up inflation this year, but its impact was more moderate and lasting than he originally expected. ⑷ Federal Reserve Governor Waller believes that inflation will not accelerate again and said that there is no sign that inflation will surge again in 2026. ⑸ However, some officials are more cautious. Kansas City Fed President Schmid emphasized that he prefers to keep monetary policy moderately restrictive while inflationary pressures remain evident. ⑹ Atlanta Fed President Bostic also reminded that it cannot be concluded that weakness in certain areas of the economy will necessarily translate into a significant reduction in inflationary pressure. ⑺These remarks highlight the Fed’s internal assessment of inflation risks and policy.There are subtle differences in the policy path. Future interest rate decisions will be highly dependent on data. Any signs of repeated inflation may quickly reverse the market's easing expectations.

Global interest rate map, the "value rift" between the U.S. dollar and non-U.S. assets

⑴ Currently, the world's major government bond yields are significantly differentiated. The U.S. 10-year Treasury bond yield is 4.138%, providing a core anchor for global interest rate levels. ⑵Based on the 10-year term, Australian government bond yields top the list at 4.752%, with a spread to the United States of +61.4 basis points, while Japanese government bond yields are only 1.966%, with a spread to the United States of -217.2 basis points, forming a huge contrast. ⑶Among the core European countries, Germany's 10-year yield is 2.851%, and the interest rate differential with the United States is -128.7 basis points. The yields of major countries in the Eurozone such as France and Italy are concentrated in the 3.3%-3.6% range. ⑷In terms of short-term interest rates, the 2-year yield in the United States is 3.473%, which is significantly higher than Germany's 2.142%. The interest rate difference between the two reaches 133.1 basis points, indicating that the market has very different expectations for the short-term monetary policy paths of the two places. ⑸From the perspective of Germany, its 2-year interest rate is lower than that of most developed countries and only slightly higher than Japan, while Australia, the United Kingdom, and the United States all have interest rate differentials of more than 130 basis points. ⑹ This interest rate map clearly outlines the cost and attractiveness differences of global capital. The general advantage of US dollar assets in terms of yield continues to affect the allocation direction of international funds and exchange rate fluctuations.

3. Trends of major currency pairs before the New York market opens

EUR/USD: As of 21:20 Beijing time, EUR/USD fell and is now at 1.1734, a decrease of 0.06%. The price (EUR/USD) fell in the last trading session before the New York session, trying to gain bullish momentum that could help it recover and rise again, trying to escape some overbought conditions on the relative strength indicator, especially with the persistence of dynamic support represented by the exchange above the EMA50, and the dominance of the bullish trend on a short-term basis and its trading along the trendline.

GBP/USD: As of 21:20 Beijing time, GBP/USD has risen and is now at 1.3406, an increase of 0.24%. Before the New York market opened, GBPUSD fell slightly on the last trading day to accumulate its bullish momentum and help it rise again. Relying on the support of EMA50, the main bullish trend dominated in the short term, and its trading was along the support trend line of this track. In addition, after reaching oversold levels, the relative strength indicator showed positive signals, providing the pair with new bullish momentum in the www.xmtraders.coming period.

Spot gold: As of 21:20 Beijing time, spot gold fell, currently trading at 4320.54, down.The margin is 0.38%. Pre-market in New York, the (gold) price fell slightly on the last trading day, after reaching overbought levels, the relative strength indicator showed negative signals in an attempt to gain bullish momentum, which may turn it into a bullish trend, especially if it trades along the smaller bullish trend line on a short-term basis, and its trading above the EMA50 represents dynamic support, enhancing the chances of price recovery on a near-term basis.

Spot silver: As of 21:20 Beijing time, spot silver fell, now trading at 65.804, a decrease of 0.59%. Pre-market in New York, (silver) price continues to fluctuate around recent intraday levels in an attempt to build up its bullish momentum, which could help it reach new all-time highs, in addition to unloading overbought conditions on the relative strength indicator, especially with the current negative signal, as it trades above the EMA50, where positive pressure continues to exist, reinforcing the dominance of the main bullish trend in the short term, with it trading along the trendline.

Crude oil market: As of 21:20 Beijing time, U.S. oil rose, now trading at 56.140, an increase of 0.61%. Before the New York market opened, (crude oil) prices fell in the last intraday trading, affected by the stabilization of the key resistance level of $56.40, while the relative strength indicator showed negative signals, showing dynamic negative pressure after reaching overbought levels, and it traded below the EMA50, exacerbating the negative pressure, especially when trading along a small downward trend line in the short term.

4. Institutional view

Institution: The lack of fiscal consolidation may limit the effect of the European Central Bank's interest rate cut policy

1. Romain Aumond, a strategist at Natixis IM Solutions, pointed out in the report that the lack of fiscal consolidation may limit the effect of the European Central Bank's interest rate cut policy. He analyzed that the European Central Bank's conservative interpretation of the "symmetric inflation target" will continue to suppress the impact of interest rate cuts over the past year and a half on the long-term yield curve.

2. Aumond believes that this restriction is mainly due to the expected fiscal deficits of Germany and France in 2026, as well as the general lack of fiscal consolidation measures in the medium term. He said the ECB also seemed unwilling to acknowledge the crowding-out effect public spending would have on private demand in the www.xmtraders.coming years. The agency, in line with consensus expectations, expects the European Central Bank to keep interest rates unchanged at its meeting on Thursday.

The above content is about "[XM Foreign Exchange Official Website]: Monetary policy paths will diverge. On December 18, spot gold, silver, crude oil,The entire content of "Forex Short-term Trend Analysis" was carefully www.xmtraders.compiled and edited by the editors of XM Foreign Exchange. I hope it will be helpful to your trading! Thank you for your support!

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