US economic growth data surprised markets unexpectedly, as the US economy grew less than expected in the last quarter of 2024. The data showed that the US economy grew by only 2.3%, while expectations indicated a growth of 2.7%. These figures were met with a quick reaction in the financial markets, as currency and commodity prices were significantly affected.
Unemployment claims rates in America
On the other hand, data on unemployment claims rates in the United States showed that the number of unemployment claims reached 207 thousand applications, while expectations indicated 224 thousand applications. This number reflects a relative improvement in the labor market, despite the decline in economic growth.
Markets’ reaction to US economic data
After the release of this data, markets witnessed unexpected movements. The US dollar index fell significantly, as it fell to 107.8 points. Meanwhile, gold prices recorded a strong rise, with gold futures rising more than 1% to $2,821.4 per ounce, while spot gold futures rose 0.73% to $2,779 per ounce.
On the other hand, US bond yields witnessed a collective decline, reflecting market concerns about slowing economic growth in the United States. However, US market futures rose, with Nasdaq 100 futures rising 0.52% in pre-opening trading, and S&P 500 futures rising 0.3%. However, Dow Jones futures still recorded a decline of 0.12% during that period.
Cryptocurrencies continue to rise
Economic movements were not limited to traditional markets only, but also extended to cryptocurrencies. Bitcoin rose 3% to $104,900, while Ethereum rose 4.7% to $3,249. This rise coincided with positive signals from the US Federal Reserve as well as statements by former US President Donald Trump, which supported optimism in the digital markets.
Why is gold rising and the dollar falling?
The decline in US economic growth rates is attributed to the increasing need to lower interest rates. This reduction may help stimulate the US economy and enhance the achievement of the desired economic goals. Despite warnings from Federal Reserve Chairman Jerome Powell about the need to be patient in making interest rate cuts, economic data indicating a decline in US economic growth may pressure the Federal Reserve to change its plans. The increasing pressure from US President Donald Trump may push the Federal Reserve to take faster steps to reduce interest rates than initially planned.
Federal trends in light of economic data
In a remarkable move, the Federal Reserve removed the reference to progress in achieving the inflation target from its monetary policy statement in January. This decision gave the statement a hawkish tone indicating that monetary policy will continue to tighten in the near future. However, many experts at Citibank believe that inflation in the United States may continue to decline, as the personal consumption expenditures index is expected to decline on a 12-month basis in the coming months, excluding the rapid price increases witnessed at the beginning of 2024.
Gold rises as the dollar declines: How did the markets react?
Recently, markets have witnessed significant movements due to the decline of the US dollar and the rise in gold prices. This change is the result of the effects of several economic factors, as recent US data did not match market expectations, which led to broad impacts on many assets. In this article, we will discuss the reasons behind this trend in the markets and how gold and dollar prices reacted to these variables.
Gold: A safe haven in times of economic uncertainty
Gold is considered one of the safe assets that investors resort to in times of economic instability. When financial markets record significant fluctuations, investors tend to transfer their money to gold as a means of preserving value in light of the decline in confidence in other assets. Gold is known to rise during periods when the dollar is weak.
The decline of the US dollar: causes and influencing factors
The decline in the US dollar was clearly one of the main factors that contributed to the rise in gold. The dollar, which is the world’s reserve currency, is considered a key measure of the strength of the US economy. However, recent economic data, especially those showing a slowdown in economic growth in the United States, led to the decline of the dollar against other major currencies.
The factors that contributed to the decline in the dollar include
- Weak US economic data: The US gross domestic product (GDP) reports showed lower-than-expected growth, which prompted markets to adjust their expectations regarding interest rates.
- Expectations of a rate cut: With the US economy weakening, many analysts believe that the Federal Reserve will have to cut interest rates to stimulate growth. These expectations put pressure on the dollar, as a rate cut reduces returns on dollar-denominated assets.
- Political pressure: Political pressure from US President Donald Trump may affect the decisions of the Federal Reserve, as he repeatedly calls for faster rate cuts to support the economy.
How did the markets react to these variables?
The market reacted noticeably to these developments, as we saw clear movements in currencies and precious metals. Gold, which is considered a safe haven in times of economic stress, witnessed a significant rise..
Gold moves:
Gold prices have risen significantly, with gold futures crossing the $2,800 per ounce mark, while spot contracts have also risen significantly. This rise mainly reflects investors fleeing the dollar towards safer assets such as gold.
The decline of the US dollar:
The US dollar index has declined significantly, falling to levels not seen in a long time. This decline reflects concerns about slowing US economic growth and market expectations regarding the Federal Reserve’s future interest rate policy.
Potential impacts on global markets
Global markets continue to closely monitor these shifts. While domestic factors, such as US economic data, continue to influence markets, the global situation plays a major role in shaping expectations. Changes in US Federal Reserve monetary policy could impact other economies, both in terms of capital flows and growth prospects. If the dollar continues to decline, we could see larger shifts in global markets, including currency and precious metals markets.
US economic data continues to have a significant impact on financial markets. The slowdown in US economic growth could have broad implications, especially for the US Federal Reserve’s monetary policy. At the same time, gold prices rose and the dollar fell, reflecting market sentiment towards safe assets amid uncertainty. All eyes are on the upcoming US Federal Reserve meetings, which could be pivotal in determining the direction of the US economy in the coming period.