The British pound weakened against the dollar in early European trading, falling 0.4% to $1.2441. This decline reflects the dollar’s strengthening position as a safe-haven currency amidst a global sell-off in technology stocks. The US Dollar Index (DX-Y.NYB), which tracks the dollar’s performance against a basket of six major currencies, surged to nearly 108.
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This surge follows a sharp downturn in technology stocks, particularly those related to power, data centers, and leading chatbot companies. The rise of China’s DeepSeek AI model has fueled investor anxieties about the future of artificial intelligence (AI), contributing to the dollar’s appeal as a safe haven. DeepSeek’s performance, comparable to US chatbot giants like OpenAI and Meta (META), has sparked concerns about potential market disruption. Unlike its Western counterparts, DeepSeek operates without heavy reliance on energy and advanced semiconductor technology.
DeepSeek Disruption and US Tariff Fears Boost Dollar
Beyond the DeepSeek disruption, growing apprehension over potential US tariffs under former President Donald Trump and anticipation surrounding the Federal Reserve’s monetary policy announcement further bolster the dollar’s strength. While the Fed is expected to maintain current interest rates at its Wednesday meeting, market participants are keenly focused on its commentary regarding inflation and future policy decisions. These pronouncements could significantly influence market sentiment moving forward. Meanwhile, the pound edged higher against the euro (GBPEUR=X), rising 0.15% to €1.1920 on Tuesday morning.
Gold Prices Mixed Ahead of Fed Decision
Gold prices exhibited a mixed performance on Tuesday as investors exercised caution ahead of the Federal Reserve’s interest rate decision. Spot gold prices inched up 0.1% to $2,740.07 per ounce, while gold futures remained relatively stable at $2,738.30.
The previous week saw gold prices appreciate by nearly 3%, propelled by calls for rate cuts from former President Trump and expectations of a gradual implementation of US tariffs. However, ING analysts noted that renewed dollar strength, stemming from escalating tensions between the US and Colombia, exerted downward pressure on gold prices in early trading. A stronger dollar typically makes gold more expensive for buyers using other currencies.
Investor Shift to Defensive Equities Impacts Gold
The decline in gold prices coincides with a broader market shift, as investors reallocate capital into defensive equity positions. This rebalancing is partly attributed to the growing interest in China’s AI startup, DeepSeek. Bart Melek, Head of Commodity Strategies at TD Securities, observed that the sell-off is primarily driven by the broad equity market rather than solely by interest rate or currency dynamics, indicating a potential liquidity crunch.
Oil Prices Rise Marginally Despite Weak Chinese Data
Oil prices saw a marginal increase on Tuesday but remained near a two-week low. Weak economic data from China and milder weather forecasts dampened demand expectations, offsetting upward pressure. Brent crude futures climbed 0.5% to $76.58 per barrel, while US West Texas Intermediate (WTI) crude rose 0.4% to $73.48 per barrel.
China’s National Bureau of Statistics (NBS) reported an unexpected contraction in its manufacturing sector for January, with the manufacturing PMI falling to 49.1 from 50.1 in December. This decline missed market expectations and raised concerns about the outlook for global crude demand. IG analyst Yeap Jun Rong suggested that the cautious risk environment and weaker Chinese PMI numbers could weigh on oil prices. In broader market activity, the FTSE 100 (^FTSE) advanced by 0.3% to 8,532 points on Tuesday morning.
