Pound Steady Ahead of Budget Announcement
The British pound (GBP) remained relatively stable against the US dollar on Tuesday, trading at $1.2972, up by just 0.03%. This cautious movement reflects market uncertainty ahead of the upcoming autumn budget.
Chancellor Rachel Reeves is set to present plans aimed at increasing taxes and enhancing public spending. These intentions were hinted at by Prime Minister Sir Keir Starmer during a recent speech in Birmingham. He emphasized the need for “tough decisions” on tax increases to prevent austerity and support the rebuilding of public services.
ING strategist Francesco Pesole noted that there is currently no political risk premium factored into the pound. He mentioned that speculators hold a significant bullish position in sterling futures, which could be quickly reversed if the budget disappoints investors. “Sterling looks vulnerable ahead of the budget event and next week’s US election, with risks skewed towards a decline to $1.2800-1.2850,” he stated.
Investors are keenly watching the forthcoming spending plans due to their potential effects on the Bank of England’s interest rate decisions. A recent Reuters poll indicates that the Bank of England may cut interest rates by 25 basis points to 4.75% during its upcoming meeting on November 7. This would mark the second interest rate reduction this year, following the decision to keep the key borrowing rate at 5% during the last policy meeting in September.
Sterling was also subdued against the euro, trading at €1.1996.
Gold Prices Hover Near Record Highs
Gold prices remained close to record highs on Tuesday, supported by uncertainty ahead of the US presidential election. Investors are looking for clues regarding the Federal Reserve’s future interest rate direction.
Spot gold rose by 0.2% to $2,749.26 per ounce, while US gold futures increased by 0.3% to $2,763.40. IG market strategist Yeap Jun Rong commented, “The lead-up to the US elections may enhance gold’s appeal as a hedge against market volatility, further buoyed by a temporary slowdown in the US dollar and Treasury yields overnight.”
With just eight days remaining until the Fed’s rate decision, market participants are anticipating several crucial events that could impact the central bank’s approach. Currently, markets are pricing in a nearly 99% chance of a 25 basis points rate cut by the Fed, according to CME’s FedWatch Tool. Lower interest rates decrease the opportunity cost of holding gold, which is often viewed as a safe asset during times of economic and political instability.
Oil Prices Recover Slightly After Significant Drop
Crude oil prices were recovering slightly on Tuesday after a significant drop of nearly $5 a barrel the previous session, fueled by growing optimism that a major escalation in the Middle East conflict could be avoided.
Brent crude futures increased by 0.4%, trading at $71.29 per barrel, while US West Texas Intermediate (WTI) gained 0.2%, reaching $67.51 per barrel in early European trading. Both contracts had fallen 6% on Monday, hitting their lowest levels since October 1.
This price decline was prompted by signs that tensions in the region may be easing. Over the weekend, Israel conducted retaliatory airstrikes on Iran but notably avoided targeting critical oil and nuclear facilities, which helped prevent disruptions to energy supplies.
In response, Iranian leaders indicated they were considering their options, stating that the Israeli strikes caused only “limited damage.” This comment was seen as a signal that Tehran is cautious about escalating the conflict further.
Hiroyuki Kikukawa, president of NS Trading, noted, “While the outlook for the Middle East situation remains concerning, the market is anticipating a temporary lull in retaliatory strikes between Israel and Iran.”
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