XAU/USD pair climbed to its highest level in a month at $1,896 on Thursday as the selling pressure surrounding the greenback intensified throughout the week. Although the pair lost its bullish momentum on Friday, it settled around 1,880 and still ended up gaining more than 2% every week.
What happened last week?
The coronavirus vaccine rollout, Brexit optimism, and heightened hopes for a US stimulus bill caused risk flows to dominate the financial markets and continued to hurt the greenback. Mirroring the broad-based USD weakness, the US Dollar Index, which tracks the buck’s performance against a basket of six major currencies, broke below 90 for the first time since April 2018.
The upbeat macroeconomic data releases also provided a boost to risk sentiment. On Tuesday, the data from China showed that Industrial Production in November expanded by 7% every year and Retail Sales grew by 5% in the same period. Moreover, the UK’s Office for National Statistics reported that the Unemployment rate in October was 4.9%, compared to analysts’ estimate of 5.1%.
On Wednesday, the IHS Markit’s PMI reports revealed that the business activity in the manufacturing sector of major economies, Germany, the eurozone, the UK, and the US, continued to expand at an impressive pace in December.
Meanwhile, the US Federal Reserve’s dovish policy outlook put additional weight on the USD’s shoulders toward the end of the week. Following its last meeting of 2020, the FOMC left its policy settings unchanged as expected. During the press conference, FOMC Chairman Jerome Powell said that they remain open to increasing asset purchases if required. Additionally, Powell reaffirmed that the Fed would not hesitate to do more if needed by using all of its tools available.
Next week
Next week will be relatively quiet in terms of significant macroeconomic data releases and events. The upcoming Christmas holiday is likely to cause volumes to thin out and keep the trading action subdued.
On Monday, the People’s Bank of China (PBOC) is expected to keep its policy rate unchanged at 3.85%. Later in the day, the Federal Reserve Bank of Chicago’s National Activity Index will be the only data featured in the US economic docket.
Source: FxStreet
