Asset Summary – Wednesday, 26 November
GBPUSD experienced volatility as the market reacted to the UK’s fiscal plans and economic forecasts. Initial optimism surrounding the Office for Budget Responsibility’s (OBR) report quickly faded as investors scrutinized the details, revealing that significant austerity measures are scheduled for the later part of the decade. While the OBR highlighted a substantial increase in the government’s fiscal buffer, a concurrent downgrade in UK growth forecasts, driven by weaker productivity and anticipated inflation, exerted downward pressure. The credibility of the government’s fiscal strategy is now in question, given the delayed implementation of austerity measures, which is contributing to unpredictable price movements in the pound against the US dollar.
EURUSD is exhibiting bullish momentum as the euro appreciates against the dollar. Weak US economic data, specifically lower-than-anticipated retail sales and job losses, are pressuring the dollar downwards. This is further compounded by expectations of a potential Federal Reserve rate cut in December. Conversely, the euro is finding support from the European Central Bank’s projected stance of maintaining stable interest rates through 2026, reflecting confidence in the Eurozone’s economic stability and near-target inflation. Despite concerns over persistent inflation in certain sectors, the ECB’s overall positive outlook suggests continued strength for the euro against the dollar.
DOW JONES is likely to experience upward pressure based on current market conditions. Increased expectations for a Federal Reserve rate cut in December, coupled with speculation regarding a potentially dovish Fed chair appointment, are fueling positive investor sentiment. The generally positive performance of major technology stocks like Alphabet, Microsoft, Apple, Amazon, and Meta suggests broader market strength that should lift the index. However, potential headwinds exist, particularly the negative performance of Nvidia and the downbeat forecast from Deere & Company, which could temper gains.
FTSE 100 experienced a period of uncertainty as investors weighed the implications of the finance minister’s budget, particularly after prematurely released economic forecasts. The unexpectedly large increase in fiscal headroom suggests the government has greater flexibility in its spending and tax policies, which could be viewed favorably by some investors. However, the projection of rising tax revenues pushing the tax burden to a record high of 38% of GDP may raise concerns about the potential impact on corporate profits and consumer spending. The OBR’s economic outlook, forecasting moderate growth but also increased inflation expectations, paints a mixed picture that could lead to continued volatility in the index as market participants assess the long-term effects of these factors.
GOLD is exhibiting upward price pressure, currently trading near a two-week high around $4,150 per ounce. The anticipated Federal Reserve interest rate cut in December is a key driver, fueled by recent economic data revealing softening consumer spending and stable producer prices. These figures, coupled with previously voiced support for a rate reduction by several Fed officials citing labor market weakness, have dramatically increased market expectations for a rate cut. However, this bullish momentum is being tempered by positive developments in the Russia-Ukraine conflict, specifically the reported agreement on a plan to end the war, which reduces the demand for gold as a safe-haven asset.