The pound held steady against the dollar on Tuesday, trading just above the flatline at $1.2746. Investors awaited key US inflation data for November, scheduled for release on Wednesday. Economists anticipate a slight acceleration in the annual headline Consumer Price Index (CPI) to 2.7%, up from 2.6% in October. Core CPI, excluding food and energy prices, is expected to rise by 3.3%. Month-on-month, both headline and core inflation are forecasted to grow by 0.2% and 0.3%, respectively.
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US Inflation Data and Federal Reserve Policy
Unless these figures deviate significantly from expectations, analysts don’t anticipate a major shift in market sentiment regarding the Federal Reserve’s policy outlook. The consensus is that the Fed will implement a 25 basis point rate cut at its December 18th meeting, bringing rates to a range of 4.25%-4.50%. The CME FedWatch tool indicates a nearly 90% probability of this outcome. The pound remained relatively unchanged against the euro, trading at €1.2083, ahead of the European Central Bank’s rate decision on Thursday.
Gold Prices Rise on Chinese Stimulus Pledges
Gold prices extended their gains on Tuesday, driven by China’s commitment to enhance policy stimulus to boost economic growth. Investors also awaited US inflation data for insights into the Federal Reserve’s interest rate strategy. Spot gold rose 0.7%, trading at $2,663.70 per ounce, while US gold futures increased by 0.1%, reaching $2,666.30. Gold reached a two-week high on Monday, supported by China’s central bank resuming gold purchases after a six-month pause. China’s pledge to adopt a more accommodative monetary and fiscal policy next year further bolstered gold’s outlook. The Politburo signaled a shift from its “prudent” policy stance maintained for nearly 14 years.
China’s Policy Shift and Gold Demand
Kelvin Wong, senior market analyst for Asia Pacific at OANDA, suggested that further interest rate cuts in China could stimulate increased gold demand. He also highlighted the re-emergence of safe-haven demand, citing China’s investigation into US chipmaker Nvidia for alleged anti-monopoly violations, hinting at potential escalating tensions between the US and China. Geopolitical concerns in the Middle East, particularly the instability in Syria, have further fueled safe-haven buying of gold and silver.
Oil Prices Retreat After Monday’s Gains
Oil prices retreated on Tuesday following Monday’s gains, pressured by a weak demand outlook after disappointing Chinese international trade data for November. Brent crude futures fell by 0.1%, trading at $72.05 per barrel, while US West Texas Intermediate (WTI) remained near flat at $68.32 per barrel. China’s exports increased by 6.7% and imports declined by 3.9% in November, both below economists’ expectations. China also reported weaker-than-expected CPI data on Monday, further indicating sluggish domestic demand.
Oil Market Outlook and Fed Decision
Despite optimism surrounding potential policy stimulus from Beijing, oil price gains might remain limited until there’s greater clarity on how China’s measures will impact the country’s crude demand outlook, according to IG market strategist Yeap Jun Rong. The market is also anticipating a potential rate cut by the US Federal Reserve, which could stimulate oil demand in the US. Priyanka Sachdeva, senior market analyst at Phillip Nova, emphasized that oil markets have been primarily driven by demand-side factors this year. Consequently, investors are hesitant to take speculative positions in oil before key policy decisions from the Fed. In broader market activity, the FTSE 100 opened lower, declining 0.5% to 8,313.17 points.
Conclusion
Market movements across pound, gold, and oil are currently influenced by anticipation of key economic data releases and policy decisions. The US inflation data and the Federal Reserve’s subsequent interest rate decision will be crucial in shaping market sentiment. Meanwhile, China’s policy stimulus measures and geopolitical developments continue to impact gold and oil prices. Investors are exercising caution as they await further clarity on these factors.
