Asset Summary – Friday, 21 November
GBPUSD is likely to face downward pressure as UK inflation cools more than anticipated. The reduced inflation rate, particularly in services and core inflation, provides the Bank of England with more leeway to consider future interest rate cuts, diminishing the pound’s appeal to investors seeking higher yields. Concurrently, the upcoming UK budget announcement and potential fiscal easing measures may further weigh on the currency. The US dollar’s relative strength, driven by anticipation surrounding key employment data, also contributes to this bearish outlook for GBPUSD, as investors remain cautious ahead of the report.
EURUSD is likely to face downward pressure as the dollar gains strength due to diminished expectations of a near-term Fed rate cut, while the ECB is anticipated to maintain its current monetary policy stance. The contrasting outlooks for monetary policy between the US and the Eurozone, coupled with positive Eurozone growth forecasts partially driven by US trade activity, creates a complex environment. While the improved Eurozone growth forecasts offer some support, the stronger dollar’s impact is expected to be the dominant factor, potentially leading to further declines in the EURUSD exchange rate.
DOW JONES is positioned for a potential rebound, indicated by futures contracts gaining over 240 points, suggesting a recovery from recent losses. The positive sentiment is bolstered by signals from the Federal Reserve hinting at possible future rate cuts in response to a softening labor market, increasing the likelihood of a December rate cut. However, despite the potential for upward movement, the Dow remains down almost 3% for the week, reflecting broader market concerns.
FTSE 100 experienced a decline, reaching a one-month low and on track for its most significant weekly drop since April, driven by concerns surrounding a potential AI-induced market bubble impacting UK and European equities. Cyclical and risk-sensitive stocks, including Rolls-Royce, Babcock, BAE Systems, BP, Shell, and major miners, faced considerable losses. The banking sector also weakened, with Standard Chartered, Barclays, Lloyds, and HSBC all declining, contributing to their overall poor performance this week. Energy stocks mirrored the struggles of softer Brent crude prices. Despite the widespread sell-off, the FTSE 100 exhibited relative resilience compared to its continental counterparts, buoyed by gains in defensive stocks like Unilever, RELX and Diageo, reflecting investors’ preference for companies with stable earnings.
GOLD is facing downward pressure as stronger-than-expected jobs data diminishes the likelihood of an imminent interest rate cut by the Federal Reserve. The increase in nonfarm payrolls suggests a more resilient labor market than previously anticipated, reducing the urgency for the Fed to lower rates. While the unemployment rate ticked up, wage growth remains elevated, further complicating the Fed’s decision-making process. With the October employment report delayed, uncertainty will persist, likely keeping gold prices subdued in the near term as traders reassess their expectations for monetary policy.