The British pound held steady against a weakening US dollar, trading at $1.2632 in early European trading. Market speculation of a potential interest rate cut by the US Federal Reserve in June contributed to the dollar’s decline.
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The US Dollar Index (DX-Y.NYB), which measures the greenback against six major currencies, dipped to a 12-week low of 106.10. This followed weaker-than-anticipated US services sector data released the previous week. The preliminary S&P Global Purchasing Managers Index (PMI) for February indicated a significant slowdown in business activity, falling to 50.4 from 52.7 in January. The services sector unexpectedly contracted, further contributing to the dollar’s weakness.
The CME FedWatch tool reveals a decreased probability (41.1%) of the Fed maintaining interest rates in the current 4.25%-4.50% range. This is a notable drop from nearly 50% before the release of the PMI data.
Deutsche Bank analysts observed that the US dollar, similar to US equities, appears expensive compared to other global currencies. Current market trends in the G10 FX market favor “cheaper” assets, contributing to the USD softening. Meanwhile, the pound weakened against the euro (GBPEUR=X), trading at €1.2058. The euro strengthened after positive investor sentiment following the German election results, despite lingering concerns about the recent Wall Street slump.
The center-right CDU/CSU alliance’s victory in the German election, securing 28.5% of the vote, boosted the euro to a one-month high. This outcome positions CDU leader Friedrich Merz to potentially become Germany’s next chancellor, subject to the formation of a coalition government.
Gold Prices Near Record Highs
Gold prices hovered near record highs, supported by the weaker dollar. Market focus shifted to a critical inflation report expected later this week. Spot gold prices increased by 0.2% to $2,942.05 per ounce, while gold futures saw a 0.1% rise to $2,957.00. Last Thursday, gold reached an all-time high of $2,954.69.
Tim Waterer, chief market analyst at KCM Trade, attributed gold’s rise to the weak US macro data impacting the dollar. He suggested that persistent trade uncertainties and the potential for new all-time highs remain on the horizon for gold. Gold’s recent record highs were fueled by safe-haven buying following trade tariff threats and concerns about a potential US economic slowdown, exacerbated by weak PMI and consumer sentiment data. The dollar’s decline, linked to expectations of potential interest rate cuts due to a softer economy, also bolstered broader metal prices.
Oil Prices Retreat Amidst Geopolitical Developments
Oil prices retreated, extending losses from the previous week, as the prospect of resumed exports from Kurdistan’s oilfields impacted the market. Investors also awaited clarity on Russia-Ukraine peace talks. Brent crude futures fell 0.4% to $73.79 per barrel, and US West Texas Intermediate (WTI) crude dropped 0.3% to $70.20.
The Kurdistan Regional Government (KRG)’s agreement with Iraq to restart oil exports contributed to the decline. Iraqi deputy oil minister Basim Mohammed Khudhair indicated an initial export volume of 185,000 barrels per day, potentially increasing to 400,000 barrels.
Sugandha Sachdeva, founder of SS WealthStreet, highlighted the pressure from the US president on Iraq to resume these exports, potentially improving global oil supply flows after a two-year disruption. Meanwhile, developments in the Russia-Ukraine war also influenced market sentiment. Statements from Steve Witkoff, Trump’s special envoy, regarding potential progress towards a peace agreement added to the complex market dynamics. He suggested that a framework based on the 2022 Istanbul Protocol Agreement could pave the way for a deal.
Conclusion: Market Volatility and Uncertainty Remain
Market volatility persists as various factors, including potential interest rate cuts, geopolitical tensions, and economic data releases, influence investor sentiment. The pound’s performance against the dollar and euro reflects the complex interplay of these forces. Gold remains a safe haven asset, benefiting from the dollar’s weakness and economic uncertainties. Meanwhile, oil prices are sensitive to supply dynamics and geopolitical developments, particularly regarding the Russia-Ukraine conflict. These interconnected factors contribute to the ongoing market fluctuations.
