Asset Summary – Tuesday, 13 May
GBPUSD faces downward pressure as the US dollar strengthens following a de-escalation of trade tensions between the US and China, making the dollar more attractive to investors. While the UK has secured positive trade agreements with the US and India, and is pursuing negotiations with the EU, these factors are being overshadowed by the Bank of England’s recent decision to cut the Bank Rate to a two-year low of 4.25%. This rate cut, driven by concerns about disinflation, signals a potentially weaker economic outlook for the UK, further contributing to the pound’s depreciation against the dollar.
EURUSD is likely to experience downward pressure as the US dollar gains strength from easing trade tensions between the US and China. The reduction in tariffs between the two economic powerhouses favors the dollar. Geopolitical developments, such as the potential meeting between the Ukrainian and Russian presidents, and the ceasefire between India and Pakistan, may have a limited, stabilising effect. However, the shift in market expectations for the ECB’s deposit facility rate towards higher levels also points to some potential support for the Euro, but ultimately the strengthened dollar is likely to lead in the short term.
DOW JONES’s immediate future appears uncertain as investors are exhibiting caution, reflected in the slip in US stock futures. While recent news of temporarily reduced tariffs between the US and China spurred a significant rally in the previous session, including a substantial 2.81% gain for the Dow, the market is now awaiting key economic data. The upcoming Consumer Price Index report, retail sales figures, and producer price data will heavily influence market sentiment and potentially impact the Dow’s trajectory, providing clarity on inflation and the overall economic health amid the evolving trade landscape.
FTSE 100 is positioned for potential continued gains, driven by positive developments in US-China trade relations. Reduced tariffs are fostering optimism, particularly for mining companies benefiting from an improved Chinese manufacturing outlook, which is boosting demand for both ferrous and base metals. Financial institutions with significant Asian exposure are also likely to see increased investor interest. However, pharmaceutical companies may face headwinds due to potential US policy changes aimed at lowering drug prices, creating a mixed outlook for the index.
GOLD is facing downward pressure due to a decrease in its safe-haven appeal. The agreement between the U.S. and China to reduce tariffs has fostered a more optimistic market environment, leading investors to shift away from typically secure assets like gold. This reduced demand, coupled with anticipation of upcoming U.S. economic data releases like CPI and retail sales, suggests potential further volatility as traders attempt to predict future Federal Reserve monetary policy decisions. These factors combined contribute to a bearish outlook for gold in the short term.