Pound Strengthens Amid Fed Rate Cut Speculation
The British pound made notable gains against the US dollar in early European trading on Monday, rising 0.2% to $1.2759. This uptick follows growing expectations that the US Federal Reserve will reduce interest rates by 25 basis points at its upcoming meeting on December 18.
Market participants are pricing in an 83% chance of the rate cut, up significantly from 62% just a week ago, according to the CME FedWatch tool. However, Fed Governor Michelle Bowman cast doubt on this possibility, stating that she preferred a cautious and gradual approach to any policy changes, given the ongoing inflationary pressures.
US Dollar Faces Challenges
Analysts also note a broader correction in the US dollar, which could persist into the new year. Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole, highlighted that recent market dynamics suggest diminishing effects of the so-called “Trump trade.” Moreover, US interest rates and Treasury yields remain near recent lows, which continue to weigh on the dollar.
Despite the positive movement for the pound, concerns over the UK economy remain. Economic data for October, scheduled for release on Friday, is expected to show a modest contraction of 0.1%. A worse-than-expected figure could put pressure on the pound, potentially prompting speculation of more aggressive rate cuts by the Bank of England in 2025.
Meanwhile, the pound also gained ground against the euro, nearing its highest levels of 2024. Political uncertainties in France and Germany, coupled with expectations of slower rate cuts from the Bank of England compared to the European Central Bank, have helped bolster sterling’s performance.
Gold Prices Rise Following China’s Gold Buying Resumption
Gold prices saw a significant increase on Monday following news that China’s central bank had resumed its gold purchases after a six-month hiatus. The move is seen as a strong signal for the precious metal, which is often viewed as a safe-haven asset during times of economic and political uncertainty.
Spot gold rose 0.4%, reaching $2,647.56 per ounce, while US gold futures increased 0.5%, trading at $2,671.70.
China’s Role in Boosting Gold Demand
China’s return to the gold market is expected to enhance domestic demand, which had weakened after the People’s Bank of China (PBOC) paused its gold buying spree in May. IG Market strategist Yeap Jun Rong described this as “good news for gold bulls,” indicating potential strength for bullion prices.
The resumption of gold buying by China follows a period of increased central bank acquisitions globally, as well as the broader trend of easing monetary policies and escalating geopolitical tensions. This has contributed to gold’s impressive performance this year, with prices up nearly 28% year-to-date, positioning it for its best annual performance since 2010.
Gold’s appeal is further heightened in a low-interest rate environment, which drives increased demand from investors seeking safe assets.
Oil Prices Edge Higher Amid Political Uncertainty
Oil prices saw modest gains on Monday as tensions in Syria and the ongoing Russia-Ukraine war raised geopolitical concerns in the Middle East. However, the gains were limited by signs of weakening demand for oil in the year ahead.
Brent crude futures rose 1%, trading at $71.87 per barrel, while US West Texas Intermediate (WTI) increased 1.5%, reaching $68.21 per barrel.
Syria and Russia-Ukraine Conflict Support Oil Prices
The political upheaval in Syria, which has led to heightened uncertainty in an already volatile region, provided some support for oil prices. The ongoing Russia-Ukraine conflict also kept the geopolitical risk premium in place, further bolstering oil prices.
Despite this, concerns over slowing demand capped any significant price increases. Last week, Saudi Arabia’s price reductions and OPEC+’s decision to extend output cuts indicated weaker demand from China, the world’s largest oil importer. These factors suggest that the oil market could soften in the months ahead.
Mitsubishi UFJ Research and Consulting economist Tomomichi Akuta noted that while political uncertainty in Syria had supported oil prices, signs of weak demand from China, as reflected in Saudi Arabia’s price cuts, pointed to a potential decline in prices going into 2025.
Saudi Arabia’s Price Cuts and OPEC+ Actions
Saudi Aramco, the world’s largest oil exporter, recently announced that it had cut January 2025 prices for Asian buyers to their lowest level since early 2021. The move reflects the weak demand from China, which continues to dominate global oil imports.
Investors are also closely monitoring the potential impact of US political developments, particularly the expected energy and Middle East policies under President Trump. There are hopes that his expansionary economic plans will increase fuel demand, offering additional support to oil prices in the near term.
Related topics:
