The British pound opened slightly higher against the dollar this week, reaching $1.2644, as investors anticipate crucial policy decisions from both the Federal Reserve and the Bank of England (BoE). These decisions, coupled with a series of significant economic data releases, are poised to shape market sentiment and influence asset prices.
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Central Bank Decisions in Focus
The Federal Reserve’s policy announcement on Wednesday is widely expected to result in a third consecutive interest rate cut. However, market participants are increasingly speculating that the pace of future rate reductions may moderate in 2025. The BoE, convening on Thursday, is anticipated to maintain its current interest rate stance. The bank has consistently signaled a cautious approach to rate cuts due to persistent inflationary pressures. These pressures are partly attributed to Chancellor Rachel Reeves’ recent budget, which is projected to contribute to price increases in the coming year.
Economic Data Releases to Watch
Beyond the central bank meetings, a plethora of economic data releases will provide further insights into the health of both the UK and US economies. This week’s calendar includes the UK’s flash PMI readings, offering a preliminary assessment of economic activity. UK employment figures and US retail sales data are due on Tuesday, followed by UK consumer inflation data on Wednesday. Thursday will see the release of the final US GDP figures, and the week concludes with UK retail sales data on Friday. The pound remained stable against the euro, trading at €1.2017.
Gold Prices Steady Ahead of Fed Meeting
Gold prices exhibited minimal fluctuation during early European trading hours on Monday, as investors maintained a watchful eye on the US dollar in anticipation of the Federal Reserve’s final meeting of the year. Spot gold saw a marginal increase of 0.4%, reaching $2,659.08 per ounce, while US gold futures remained largely unchanged at $2,675.40. Market consensus suggests the Fed will likely adopt a cautious approach to future easing, indicating that interest rates could remain elevated for the foreseeable future. Higher interest rates typically exert downward pressure on gold prices due to the increased opportunity cost of holding non-yielding assets.
Despite the current subdued performance, analysts at ANZ maintain a positive outlook on gold’s long-term trajectory. They project a moderate return of approximately 10%, with prices potentially reaching a record high of $2,900 per ounce in 2025. Geopolitical risks, including escalating tensions in the Middle East and uncertainties surrounding trade policies, are also anticipated to bolster gold demand, reinforcing its appeal as a safe-haven asset.
Oil Prices Retreat from Recent Highs
Oil prices retreated slightly from their highest levels in recent weeks as traders secured profits ahead of the Federal Reserve’s policy meeting. The meeting is expected to provide clues regarding potential further interest rate cuts. However, the decline in oil prices was limited by persistent concerns over supply disruptions, particularly in the event of additional sanctions imposed by the US on major oil producers such as Russia and Iran. Brent crude futures dipped by 0.5%, trading at $74.13 per barrel, while US West Texas Intermediate (WTI) declined by 0.6% to $70.86 per barrel.
Supply concerns linked to geopolitical risks remain a significant factor supporting oil prices. However, the overall outlook for oil remains relatively pessimistic, with analysts forecasting a decline in Brent crude to $70 per barrel next year due to anticipated oversupply driven by robust growth in non-OPEC+ production. In other market developments, the FTSE 100 opened relatively flat at 8,296.40 points.
