Asset Summary – Thursday, 20 March
GBPUSD is demonstrating upward momentum, likely to remain elevated as the Bank of England is anticipated to maintain higher interest rates for a longer duration compared to the Federal Reserve. This divergence in monetary policy expectations favors the pound. The market’s anticipation of shallower rate cuts by the BoE relative to the Fed strengthens the pound’s appeal. Despite recent UK economic contraction data, optimism surrounding infrastructure investments offers further support. Furthermore, the UK government’s adaptable stance regarding potential trade challenges from the US, combined with a weakening dollar driven by US economic growth and trade worries, further contributes to a positive outlook for the currency pair.
EURUSD is exhibiting a stable position around the $1.09 mark, close to recent highs. The German fiscal policy shift, involving increased borrowing for defense and infrastructure, introduces potential inflationary pressures that could support the euro. The reduced expectation of ECB rate cuts, with only two anticipated this year and a floor of 2% now priced in, diminishes downward pressure on the euro. Uncertainty surrounding geopolitical tensions, such as the trade war and the Ukraine conflict, may contribute to volatility. Overall, the combination of German fiscal stimulus and revised ECB rate cut expectations presents a scenario that could sustain or even moderately strengthen the euro against the dollar, while global events may cause fluctuations.
DOW JONES is likely to see continued positive momentum, building on Wednesday’s gains, as futures indicated an upward trajectory following the Federal Reserve’s confirmation of plans for two interest rate cuts this year. The Fed’s decision to maintain current rates while anticipating future reductions, coupled with indications of a softening economy and job market, is generally seen as favorable for equities. Despite concerns regarding inflationary pressures stemming from potential trade policies, the Fed’s perceived dovish stance is encouraging investor confidence. Furthermore, upcoming economic data, specifically jobless claims, and earnings releases from major corporations like Nike, FedEx, and Micron Technology, could provide further catalysts for shifts in the Dow’s value.
FTSE 100 is demonstrating positive momentum, evidenced by its six-day winning streak, the longest in almost a year. This upward trend suggests growing investor confidence, although caution remains as major central bank decisions loom. Expectations that both the Federal Reserve and the Bank of England will maintain current interest rates are likely contributing to this stability. Strong performance in oil stocks, led by Shell and BP, alongside gains in other sectors like industrials and retail, further supports this positive outlook. However, the departure of Hargreaves Lansdown from the index indicates a potential shift in the composition of the FTSE 100 and could have minor implications for its overall valuation.
GOLD is experiencing upward price pressure due to a confluence of factors. Anticipation of interest rate cuts by the US Federal Reserve makes the non-yielding asset more attractive to investors. Heightened geopolitical instability, specifically escalating conflict in the Middle East, is further bolstering demand for gold as a safe haven. Concerns surrounding global trade friction, including recently implemented and upcoming tariffs, also contribute to the positive sentiment towards gold’s value.