Pound, gold and oil prices in focus: commodity and currency check

Pedro Goncalves

Sterling regained positive momentum against the US dollar during the Asian trading session on Thursday, partially reversing the sharp overnight retracement from its high of 1.3430 — the strongest level since March 2022.

The GBP/USD pair was trading at 1.2248 at the time of writing, marking a modest daily rise of 0.2%. Analysts suggest the pair is well-positioned to continue the uptrend seen over the past two weeks.

Despite efforts from several Federal Reserve officials to temper market expectations of aggressive rate cuts, investors are increasingly factoring in the possibility of a larger-than-expected reduction in US interest rates this November. This evolving sentiment is influencing currency markets, especially as the outlook for the US dollar softens.

Goldman Sachs revised its forecasts for the pound, citing economic resilience in the UK and a reassessment of the US dollar’s prospects. Kamakshya Trivedi, head of global FX strategy at Goldman Sachs in London, said: "Sterling is currently supported both by its risk beta and the UK’s solid growth momentum, along with a patient approach from the Bank of England."

The Bank of England last week opted to keep interest rates steady with an 8-1 vote, signalling that any future rate cuts would be gradual.

Michael Pfister, an FX analyst at Commerzbank, questioned whether a stronger pound might prompt the BoE to accelerate the pace of rate cuts. He highlighted examples of central banks such as Norges Bank and the Reserve Bank of Australia, which have become more hawkish in response to stubborn inflationary pressures.

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"In the UK, almost all inflationary pressure now stems from services, while goods have played a diminishing role," Pfister said. "In fact, we’ve seen outright deflation in certain goods sectors, which has helped bring down the core inflation rate. However, the persistent inflation in services suggests that the pound would need to strengthen significantly to close the gap between core inflation and the BoE's target."

Since the beginning of 2023, the pound has appreciated nearly 5% against the US dollar, making it the best-performing currency among the G10 group. Nevertheless, analysts believe this rise may not be enough to significantly cool the inflationary pressures that remain in the UK economy.

Against the euro, the pound (GBPEUR=X) was also higher, trading at 1.1972.

Gold prices were steady, hovering around near record highs, as weak US economic data bolstered expectations for deeper Federal Reserve rate cuts.

Gold futures hit $2,685 on Thursday as US consumer confidence data released the day before showed the largest decline in three years, further fuelling market expectations for monetary easing.

Market sentiment is shifting toward increased chances of further Fed rate cuts, with swaps traders now betting on more than three-quarters of a percentage point of easing by the end of the year. Gold and silver typically benefit from lower interest rates, as they provide no yield, while a weaker US dollar makes these metals more affordable for global buyers.

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The price of gold is up nearly 30% year to date, analysts note — outpacing the benchmark S&P 500’s (^GSPC) roughly 20% gain since the start of 2024.

Oil prices fell on Thursday, reversing earlier gains, following reports that top exporter Saudi Arabia is preparing to abandon its informal $100 per barrel price target in anticipation of expanding crude production.

Brent crude futures declined to $71.03 a barrel, while U.S. West Texas Intermediate (CL=F) crude slipped to $67.78 per barrel in the early hours of Europe trading

According to the Financial Times, Saudi Arabia is considering dropping its $100 per barrel price goal as it moves to ramp up production, a decision that weighed heavily on the market.

During the Asia session, oil prices rose on signs of stronger fuel demand and decreasing inventories in the US, the world’s largest consumer of crude. However, concerns over global demand, particularly from China, tempered optimism.

Tony Sycamore, a market analyst at IG, noted that further fiscal stimulus measures may be needed in China to bolster household consumption and revitalize economic growth. "On top of this week’s easing measures, fiscal stimulus is likely required to reignite flagging animal spirits," Sycamore said.

Meanwhile, the FTSE 100 (^FTSE) opened in the green, up by 0.6%. For more details check our live coverage here.

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