commodity and currency check, 22 October

October 22, 2024

3 minutes read

Sterling edged 0.2% higher against the dollar to $1.3007 on Tuesday as traders awaited crucial guidance on the trajectory of UK interest rates from Bank of England (BoE) governor Andrew Bailey, who is scheduled to deliver a speech later on Monday.

However, further gains for the pound were tempered by growing investor caution ahead of the UK’s autumn budget, set to be unveiled on 30 October. Markets are particularly concerned about reports that chancellor Rachel Reeves is preparing to announce a series of tax hikes as the Treasury warned of difficult decisions after a September borrowing rise.

This fiscal uncertainty is weighing on sentiment, with traders remaining vigilant as potential shifts in monetary and fiscal policy come into focus.

Bailey’s speech is expected to be a key market driver. Should the BoE governor signal that the central bank is prepared to cut interest rates aggressively, assuming inflation continues to ease, the pound could come under renewed pressure.

Adding to the broader uncertainty, the UK’s significant budget release is just nine days away, while the US faces a contentious presidential election in 15 days. Both events are expected to shape the outlook for GBP/USD exchange rates, as well as affect sterling and the dollar against other currencies, including the euro.

Against the euro (GBPEUR=X), sterling was basically muted, trading at €1.2011.

Gold prices climbed on Tuesday, hovering near record highs as investors sought safety amid uncertainties surrounding the upcoming US presidential election, rising tensions in the Middle East, and expectations of interest rate cuts from central banks.

Spot gold was trading at $2,733.83 per ounce, while US gold futures inched up 0.1% to $2,750.30, at the time of writing.

The precious metal, widely regarded as a hedge against political and geopolitical risks, reached an all-time high of $2,740.37 on Monday. So far this year, gold has surged over 32%, reflecting sustained demand as global uncertainties mount.

“A confluence of tailwinds remains in place,” said IG market strategist Yeap Jun Rong, citing gold’s appeal as a hedge against US election risks, ongoing geopolitical tensions, and resilient central bank demand. He noted that buyers are now eyeing the $2,800 level as election-related uncertainties intensify.

Richard Hunter, head of markets at Interactive Investor, said: “Global uncertainty has led to a long list of bullish drivers for the gold price, which has now risen by 34% so far this year and has set several new records along the way.

“Quite apart from geopolitical tensions, the imminent US election and questions over Chinese commodity demand, the precious metal has reportedly attracted other buying interest in addition to its appeal as a haven investment.

“There has apparently been some sustained buying of gold by the Chinese authorities in an effort to reduce their reliance on the US dollar amid the fractious relationship between the two countries, while other central banks have also been adding to their gold holdings. The possibility of a lower dollar, with its inverse relationship to the gold price, could also provide further gains.”

Some analysts are even forecasting a potential breach of the $3,000 mark. Wes Wilkes, CEO of Net-Worth NTWRK, said: “After a significant 13-year consolidation, gold’s breakout looks set to continue. With the US election looming and geopolitical tensions persisting, we expect the $3,000 level to be reached, possibly before the end of 2024.”

Crude oil prices edged lower on Tuesday, as renewed diplomatic efforts by the US to broker a ceasefire in the Middle East and concerns over slowing demand growth in China, the world’s largest oil importer, calmed down markets

Brent crude futures slipped 0.6% to $73.82 a barrel, while US West Texas Intermediate (WTI) (CL=F) crude lost 0.1% to $70.50 per barrel during early European trading.

The drop comes as US secretary of state Antony Blinken arrived in Israel, launching a Middle East tour aimed at reviving talks to end the Gaza conflict and preventing further escalation in Lebanon.

“Crude oil prices have been fluctuating in response to mixed news from the Middle East, as the situation alternates between escalation and de-escalation,” said Satoru Yoshida, a commodity analyst at Rakuten Securities.

Yoshida noted that the market could see upward momentum if China’s economic recovery shows clearer signs of progress, potentially bolstered by Beijing’s stimulus measures and an improvement in the US economy following potential interest rate cuts. However, persistent uncertainties around the global economic outlook are likely to cap gains, he cautioned.

Meanwhile, the FTSE 100 (^FTSE) was lower at the open, losing 0.3% to at 8,295 points. For more details check our live coverage here.

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October 22, 2024

3 minutes read