The British pound saw a modest gain against the US dollar in early European trading on Thursday, rising nearly 0.3% to $1.2736. This movement followed closely on the heels of pronouncements from central bankers in both the UK and the US, leaving investors to analyze their potential implications.
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The Financial Times reported that Bank of England Governor Andrew Bailey anticipates four interest rate cuts in the coming year. Simultaneously, across the Atlantic, Federal Reserve Chair Jerome Powell offered a more optimistic outlook, stating in a Wednesday interview that the “US economy is in very good shape and there’s no reason for that not to continue.”
Powell’s Cautious Optimism and Market Reactions
While Powell refrained from hinting at the Fed’s potential interest rate decisions in its final policy meeting of the year, he did emphasize the economy’s strength, suggesting a more cautious approach moving forward. This cautious optimism, however, was countered by market analysis. Deutsche Bank Research’s macro strategy team noted that “US Treasury yields fell across the curve thanks to some weaker than expected data.” This led investors to increase the likelihood of a December rate cut by the Fed, with futures contracts reflecting a probability of 77.5% by the close of trading.
Sterling Holds Steady Against Euro Despite French Political Upheaval
Despite political turmoil in France, with the government losing a no-confidence vote for the first time since 1962, the pound remained relatively stable against the euro, trading at €1.2079. The French National Assembly voted 331 to 577 in favor of ousting Michel Barnier’s government. However, as Deutsche Bank’s macro strategists observed, the outcome was largely anticipated, minimizing market reactions. The significant market movements had already occurred earlier in the week following Marine Le Pen’s announcement that her party would vote against the government.
Gold Dips Slightly Amidst Economic Data and Powell’s Comments
Gold prices experienced a minor decline on Thursday morning as investors processed Powell’s comments alongside newly released economic data. Spot gold fell 0.3% to around $2,642.62 per ounce, while US gold futures contracts saw a 0.2% decrease to $2,669.70 per ounce. Contributing to this dip was the weaker-than-expected November reading of the US Institute of Supply Management (ISM) services index, which registered at 52.1, below the anticipated 55.7. Furthermore, the employment component of this US services growth measure also declined to 51.5. Disappointing US private payroll figures from Automatic Data Processing (ADP), reporting 146,000 new jobs compared to the projected 150,000, added to the downward pressure on gold.
Oil Prices Rise in Anticipation of OPEC+ Decision
Oil prices experienced an upward trend on Thursday as market participants awaited the decision from OPEC+ regarding potential supply cuts. Brent crude futures rose 0.2% to $72.44 per barrel, while US West Texas Intermediate (WTI) climbed 0.2% to $68.70 per barrel. The meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies is expected to address production policy for the first quarter of 2025. Analysts largely predict an extension of existing supply cuts to bolster oil prices in the face of weaker global demand.
Geopolitical Tensions and Market Outlook
Adding to market uncertainty is the ongoing conflict in the Middle East. Despite a ceasefire agreement, Israel’s military operations in Lebanon persist. Diplomatic efforts are underway to address Israeli breaches of the truce and secure their withdrawal from border towns. However, Israeli Defence Minister Israel Katz’s warning of potential strikes on Lebanese infrastructure if the ceasefire collapses further fuels concerns about regional instability. In other market developments, the FTSE 100 experienced a subdued opening, trading at 8,341.39 points. James Knightley, US chief international economist at ING, suggested that a weaker-than-expected US jobs report on Friday, coupled with dovish commentary from the Fed, could increase the likelihood of a 25 basis point rate cut on December 18th. This confluence of factors – central bank pronouncements, economic data releases, and geopolitical tensions – continues to shape market sentiment and influence asset prices.
