Asset Summary – Thursday, 18 September
GBPUSD is poised for potential upside as the Bank of England is anticipated to maintain its current interest rate and slow its bond unwinding program. This expectation, coupled with UK inflation data matching forecasts and a stable labor market, suggests the BoE is unlikely to enact rate cuts in the near term. Simultaneously, the Federal Reserve’s recent rate cut, although communicated as a preemptive measure, could weigh on the dollar. The contrast between a potentially dovish Fed and a steady BoE could favor the pound, potentially pushing the GBPUSD higher.
EURUSD faces a complex outlook shaped by diverging monetary policy signals. While the Federal Reserve has initiated rate cuts in the US, with hints of further easing, the European Central Bank appears to be pausing its rate-cutting cycle, emphasizing caution due to persistent economic risks. This difference in approach, alongside the firming dollar following the Fed’s announcement, suggests potential headwinds for the EURUSD. Moreover, the Euro Area’s slightly lower than expected inflation reading could further weigh on the euro, as it gives the ECB less incentive to raise interest rates, making the dollar comparatively more attractive.
DOW JONES experienced gains on Wednesday, rising 0.57%, and futures suggest continued upward momentum. This positive outlook is tempered by the Federal Reserve’s indication of a potentially slower pace of interest rate cuts than previously anticipated by the market. While a 25 basis point cut was implemented, projections for future cuts have been scaled back, creating uncertainty. The Dow’s performance may also be influenced by sector rotations, as financials, consumer staples, and materials showed strength, while technology, industrials, and consumer discretionary sectors underperformed. Upcoming economic data, particularly inflation and labor market figures, will be crucial in determining the trajectory of the Dow.
FTSE 100 experienced a slight recovery, interrupting a recent decline, primarily driven by positive company-specific news. Strong food sales data boosted Marks & Spencer, while an analyst upgrade and strategic investments fueled gains for Centrica. Better-than-expected profits lifted Barratt Redrow, though caution regarding potential budget impacts was noted. Counteracting these positives, a failed drug trial weighed on AstraZeneca. The broader economic picture remained largely unchanged, with inflation and jobs data aligning with expectations, leaving the Bank of England’s expected monetary policy response stable. Market participants are now focusing on the anticipated actions of the Federal Reserve.
GOLD is currently trading around $3,650 per ounce, maintaining losses after the Federal Reserve’s rate cut decision and subsequent strengthening of the US dollar. While the rate cut was anticipated and hints at possible future reductions, the Fed Chair’s cautious stance and emphasis on a meeting-by-meeting evaluation of future rate adjustments create uncertainty, potentially limiting upward momentum for gold. The precious metal’s impressive 39% year-to-date gain, driven by easing expectations, geopolitical instability, and central bank demand, may face headwinds. Furthermore, limited supplies of used gold in India, as investors hoard expecting further price appreciation, suggests continued underlying support, even as the market digests the implications of the Fed’s latest policy announcement.