Pound (GBPUSD=X)
The British pound has dropped to its lowest level since November 2023, reflecting concerns over the UK’s public finances. Sterling fell more than 0.5%, reaching $1.2128 against the dollar, marking its weakest point in 14 months. Some traders are predicting the pound could weaken by as much as 8%.
The euro also reached its lowest point since November 2022, trading at $1.0275.
Jamie Niven, a fund manager at Candriam, expressed a bleak outlook for the pound, stating that its most likely path would be further decline. Niven pointed out that there was “very limited pricing in of Bank of England cuts,” along with ongoing fiscal challenges, which were weighing on the currency.
Last week, Deutsche Bank urged investors to sell the pound, warning of market volatility contributing to its continued weakness. Economist Shreyas Gopal added that there is “further to go in the recent pound weakness.”
Investor sentiment is shifting as demand for options on the pound has surged by 300%, with hedge funds betting on the pound’s continued decline. The pound’s struggles were compounded by a sell-off in UK government bonds, known as gilts, which caused yields to rise. This rise in yields is seen as a sign of investor unease about the UK’s fiscal health.
If the bond sell-off continues, Chancellor Reeves may have to reconsider her tax and spending plans or risk breaching fiscal rules. Despite this pressure, she has maintained that these rules are “non-negotiable.”
The pound was also lower against the euro, trading at €1.1893.
Gold (GC=F)
Gold prices dipped in early European trading as traders adjusted their expectations for US interest rate cuts after stronger-than-expected nonfarm payrolls data boosted the dollar. The spot price of gold dropped 0.1% to $2,688.72 per ounce, while gold futures also slipped 0.1%, trading at $2,711.50 per ounce.
IG market strategist Yeap Jun Rong noted that weaker US economic data would be key to easing pressure on gold. He suggested that “weaker US data ahead will be the much-needed catalyst” for a potential reversal in yields and easing of the economic resilience narrative.
Despite the recent pullback, analysts remain optimistic about gold’s outlook for 2025. Priyanka Sachdeva of Phillip Nova suggested that if gold maintains a price above $2,700, it could potentially reach $3,000.
Traders are now focusing on the Federal Reserve’s upcoming meeting later this month, where they expect the central bank to keep rates steady. Market expectations indicate only one rate cut in 2025, likely in June.
Bank of America Global Research stated, “After a very strong December jobs report, we think the cutting cycle is over.”
Oil (BZ=F, CL=F)
Oil prices surged to their highest levels in four months after the US Treasury Department imposed additional sanctions on Russian oil. Brent crude futures rose 1.6% to $81.04 per barrel, while US West Texas Intermediate (WTI) crude jumped 2.5% to $78.51 per barrel.
The Biden administration introduced its most extensive sanctions package yet, targeting Russia’s oil and gas revenues, which fund its military campaign in Ukraine. The new measures specifically target major Russian oil producers, including Gazprom, Neft, and Surgutneftegas, as well as 183 vessels linked to transporting Russian oil.
These sanctions are expected to significantly disrupt Russian oil exports, prompting key importers like China and India to seek alternative sources of oil from the Middle East, Africa, and the Americas.
RBC Capital Markets noted that these new sanctions add to the uncertainty surrounding the oil market in the first quarter.
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