The pound was muted against the dollar in early European trading, hovering around the $1.2700 mark. A rise in the greenback, driven by lower expectations of an aggressive interest rate cut in the US and mounting concerns over president-elect Donald Trump’s proposed tariffs, limited any significant gains for sterling.
The dollar’s strength was further bolstered by speculation that the Federal Reserve may hold off on any major rate cuts, with traders also factoring in the potential impact of Trump’s protectionist policies on global trade. As a result, the pound struggled to find momentum in this environment.
However, governor of the Bank of England Andrew Bailey is scheduled to deliver a speech later in the day, which could offer some support for the pound. Traders will be keen to listen for any signals regarding the Bank’s stance on interest rates, especially with the next policy meeting just a few weeks away. Any indication of tightening or dovishness could provide fresh direction for sterling.
Matthew Ryan, head of market strategy at Ebury said: “The pound has staged a decent recovery against the dollar in the past week, ending London trading on Tuesday just below the 1.27 level.
“The view that the UK economy is unlikely to be heavily impacted by Trump’s tariffs appears to be providing sterling with at least a modicum of support. The domestic outlook is far from devoid of risk, however, and Tuesday’s report from the British Retail Consortium, which showed that like-for-like retail sales sank by 3.4% YoY in November, provides reason for caution.
“Governor of the Bank of England Andrew Bailey will be speaking on Wednesday, with fellow MPC member Greene to follow on Thursday. Today’s revised PMI data is not likely to shift GBP too much, unless we see a large deviation from the initial estimate.”
Meanwhile, sterling pushed higher against the euro (GBPEUR=X) as political uncertainty in France weighed on the single currency. Sterling advanced as concerns over the stability of the French government took centre stage. A no-confidence vote against prime minister Michel Barnier is set to take place later on Wednesday, raising fears of a potential political crisis in the eurozone’s second-largest economy.
Looking ahead, the euro may continue to face pressure, particularly if the eurozone’s latest services PMI report confirms a contraction in activity for November. A weak reading could add to concerns about slowing economic growth in the region and undermine the single currency further.
Gold prices faced challenges in gaining traction during early European trade on Wednesday, despite a brief rally overnight triggered by political unrest in South Korea. The precious metal’s gains were largely subdued as traders remained cautious, awaiting key signals on US interest rates.
Spot gold was muted at $2,641.90 per ounce, while US gold futures slipped 0.2% to $2,663.80 at the time of writing.
"Buyers are once again attempting to revive the rally here, having managed to lift the spot gold price off last week’s low and avoid any further push to the downside," Chris Beauchamp, chief market analyst at IG, said.
He added that further upside could target the 25 November high of $2,720, with a potential push towards the record high set in late October. However, he cautioned that in the event of a pullback, gold could revisit support levels around $2,600, with a deeper decline bringing it closer to the $2,550 mark, where a significant correction was halted last month.
The initial boost for gold came as South Korean president Yoon Suk-Yeol declared martial law on Tuesday, heightening fears of political instability. However, Yoon quickly rescinded the decision after facing significant opposition from both the South Korean parliament and the public.
Despite this, the move amplified investor concerns over the political situation in South Korea, a key player in East Asia’s economy, sparking renewed demand for safe-haven assets like gold.
Yet, by Wednesday morning, gold prices were muted as traders shifted their focus to the upcoming speech from Federal Reserve chair Jerome Powell, who is expected to offer further insight into the central bank’s future policy direction.
Powell’s address comes just weeks ahead of the Fed’s final meeting of the year. While markets are anticipating a 25 basis-point rate cut in December, the outlook for interest rates beyond that remains highly uncertain due to persistent inflationary pressures and potential policy shifts under the incoming US administration.
The uncertainty surrounding US monetary policy has been a key driver of recent market volatility. The dollar has surged on expectations of a more hawkish Fed stance, putting pressure on gold and other commodities priced in the US currency.
As traders brace for Powell’s comments, the precious metal is in a holding pattern.
Oil prices climbed on Wednesday as concerns over escalating Middle East tensions and the prospect of prolonged supply cuts by OPEC+ fuelled market uncertainty.
Brent crude futures rose 0.2%, trading at $73.80 per barrel, while US West Texas Intermediate (WTI) (CL=F) climbed 0.1% to $70.01 per barrel at the time of writing.
The latest uptick in oil prices comes as Israel’s military actions in Lebanon continue despite a cease-fire agreement. Lebanese prime minister Najib Mikati confirmed on Tuesday that diplomatic efforts are underway to address Israeli violations of the truce, with hopes to secure Israel’s withdrawal from border towns. However, Israeli defence minister Israel Katz warned that Israel would target Lebanese state infrastructure if the cease-fire collapsed, further stoking fears of regional instability.
Further compounding market concerns is the looming decision from the Organisation of Petroleum Exporting Countries (OPEC) and its allies — collectively known as OPEC+. The group is set to meet on Thursday to discuss its production policy for the first quarter of 2025, with many analysts expecting OPEC+ to extend its current supply cuts through at least the end of March. This move would aim to support oil prices amid weaker-than-expected global demand.
On the supply side, the American Petroleum Institute (API) reported an unexpected build in US crude inventories late on Tuesday. US commercial crude stocks rose by 1.23 million barrels in the week ending 29 November, contrary to market expectations of a 2.06 million barrel drawdown. While this inventory increase provided some relief to traders, it has capped the upward momentum in oil prices for the time being.
In broader market movements, the FTSE 100 (^FTSE) opened lower, slipping 0.2% to 8,346.83 points. For more details check our live coverage here.
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