US Inflation Heats Up, Strengthening December Rate Hike Bets

Stronger US economic growth and accelerating inflation reinforce expectations of a December rate increase, while gold declines, oil advances on Middle East tensions, and the European Central Bank (ECB) signals further tightening.

Market Wrap-Up: US Inflation Rises, Gold Falls, and Oil Extends Gains

Inflation in the United States (US) accelerated in September, with the Personal Consumption Expenditures (PCE) Price Index rising 0.5% month-on-month, following a 0.3% increase in August. Annual PCE inflation climbed to 3.6% from 3.4%, while core PCE inflation increased 3.1% year-on-year, compared with 3.0% previously. The figures reinforced expectations that the Federal Reserve (Fed) could raise interest rates in December.

Meanwhile, the US economy expanded at an annualised rate of 3.4% in the third quarter, exceeding economists' expectations of 3.2% and marking its fastest growth in a year. Consumer spending and business investment in artificial intelligence (AI) supported economic activity, although momentum in household consumption weakened towards the end of the quarter.

Consumer spending increased at a 3.8% annualised rate during the July-September period, matching the previous quarter. However, inflation-adjusted consumer spending was unchanged in September, suggesting a weaker growth trajectory heading into the fourth quarter. Business spending on equipment surged 20.9%, providing a substantial contribution to economic growth.

Despite the stronger economic data, the US dollar slipped against a basket of major currencies, while US Treasury yields also declined. The Fed maintained its benchmark interest rate at 3.75%-4.00% on Wednesday, acknowledging that inflation remained elevated. Financial markets continued to price in a December rate increase, with the CME FedWatch Tool indicating an 84.6% probability of a rate hike.

Gold came under pressure, with spot prices falling 1.4% to USD 4,008.76 per ounce by 2:09 p.m. Eastern Daylight Time (EDT), or 18:09 Greenwich Mean Time (GMT), on Thursday. Higher inflation and expectations of tighter monetary policy weighed on the non-yielding metal, while silver dropped 3.5% to USD 52.08 per ounce.

Oil prices moved higher in early Friday trading as Yemen's Iran-aligned Houthis stepped up reported attacks on Saudi Arabia, heightening concerns over regional supply disruptions. Brent crude futures rose 0.75% to USD 115.74 a barrel, while US West Texas Intermediate (WTI) crude futures gained 0.71% to USD 102.72. Both benchmarks were on course for a fourth consecutive monthly gain, with Brent heading towards a nearly 14% monthly increase and WTI towards a 15% rise.

The geopolitical situation remained a key focus for energy markets. The Houthis said they had attacked several sites in Saudi Arabia, including the Ras Tanura refinery, the Rabigh refinery, and an Aramco facility in Abqaiq. Separately, a Saudi-led coalition said it had intercepted a cruise missile launched towards the kingdom's western region. Concerns surrounding security near the Strait of Hormuz continued to support oil prices amid uncertainty over diplomatic efforts between Washington and Tehran.

In Europe, the ECB kept interest rates unchanged at 2.5% but signalled that another increase could follow in December as rising energy costs intensified inflation risks. President Christine Lagarde said policymakers had discussed a rate increase at Thursday's meeting but wanted more data before making a decision. She also highlighted the impact of higher government borrowing costs on the economic outlook, particularly across heavily indebted eurozone countries. Separately, Lagarde announced that she would step down as ECB President on 7 February 2027, ahead of the scheduled end of her term.

Looking ahead, market attention will remain on developments in the Middle East, energy prices, and their implications for inflation and monetary policy. Investors will also assess whether resilient US economic growth and persistent price pressures strengthen the case for further central bank tightening in the coming months.

US Dollar Index (DXY)

Key Takeaways

·         Dollar resilience remains challenged by declining Treasury yields despite persistent inflationary pressures.

·         Divergence between stronger US economic growth and softer dollar performance highlights the market's sensitivity to bond yields and monetary policy expectations.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 101.59

·         Resistance: 102.44

XAU/USD

Key Takeaways

·         Rising rate expectations continue to challenge gold's appeal, keeping the metal under pressure.

·         Persistent inflation supports expectations of tighter monetary policy, while geopolitical uncertainty remains a potential source of safe-haven demand.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 3,975

·         Resistance: 4,032

WTI Contract for Difference (CFD)

Key Takeaways

·         Escalating Middle East tensions keep geopolitical risk premiums elevated across crude markets.

·         Expectations of continued supply disruption remain a key factor shaping oil market sentiment heading into November.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 99.79

·         Resistance: 105.00

Calendar Watch 

·         US: Chicago Purchasing Managers' Index (PMI): Markets will monitor the Chicago PMI for fresh signals on US manufacturing activity, business conditions, and economic momentum ahead of other key economic releases.

·         US: Fed Musalem Speech: Comments from Federal Reserve official Alberto Musalem will be watched for further insight into the central bank's assessment of inflation, economic conditions, and the outlook for interest rates.

·         US: Employment Cost Index (ECI): The ECI will provide insight into labour cost pressures, including wages and employee benefits. Higher employment costs could add to concerns over persistent inflation and influence expectations for the Fed's monetary policy.

·         Eurozone: Unemployment Rate: The latest unemployment figures will offer an indication of labour market conditions and economic resilience across the eurozone, helping investors assess the region's employment outlook.

·         Eurozone: Gross Domestic Product (GDP) Growth Rate: Investors will assess the latest GDP figures for signs of economic strength or weakness across the eurozone, with particular attention to whether growth momentum supports or complicates the ECB's monetary policy outlook.

Whether you are new to the markets or an experienced trader, stay connected to global markets with CPT Markets.  

Access our trading platforms across multiple devices, with competitive spreads and fast execution. 

This content is provided for informational purposes only and does not constitute investment advice, investment recommendations, or an offer or solicitation to buy or sell any financial instrument. Trading financial products such as foreign exchange (forex) and contracts for difference (CFDs) involves a high level of risk and may not be suitable for all investors. You may lose all of your invested capital, and in certain circumstances, losses may exceed your initial deposit. Please ensure that you fully understand the risks involved and carefully consider your financial objectives, level of experience, and financial situation before trading.