Asset Summary – Thursday, 28 August
GBPUSD is exhibiting upward momentum due to positive signals from the UK economy. The strengthening business activity, particularly in the services sector, is contributing to this bullish trend. While recent inflation figures provided a temporary boost, their limited impact suggests they are unlikely to drastically shift monetary policy. Market expectations for interest rate cuts have diminished, reinforcing the pound’s strength. The significant appreciation of sterling against the dollar year-to-date further supports a positive outlook for the currency pair.
EURUSD faces a complex outlook shaped by contrasting forces. The Eurozone’s relatively positive economic signals, including strong labor markets and improved German business sentiment, coupled with the ECB’s indication of a pause in further rate cuts, support the euro. Conversely, the potential for a US rate cut in September, as hinted at by the Federal Reserve, weakens the dollar. The trade agreement between the EU and the US, while imposing tariffs on some European goods, appears less detrimental than initially feared, particularly given the potential exemption of key sectors like autos, pharmaceuticals, and chips, thus limiting downside pressure on the euro. The resulting policy divergence between the ECB and the Fed, combined with the economic data, could create upward pressure on the EURUSD pair.
DOW JONES faces potential downward pressure as US stock futures indicate a possible decline following Nvidia’s post-earnings dip. Although the broader market experienced gains in regular trading, with the Dow itself rising, weakness in the semiconductor sector, triggered by Nvidia’s disappointing data center sales and China-related news, could negatively impact the Dow’s performance. While analysts suggest the AI rally remains strong and view the dip as a buying opportunity, the initial market reaction indicates caution and the potential for a pullback in the Dow.
FTSE 100 experienced a positive trading session, demonstrating resilience by offsetting previous losses and performing better than other European markets. Gains were primarily driven by JD Sports’ robust US sales and a new share buyback program which boosted investor confidence despite ongoing concerns about consumer finances and unemployment. Utility companies also contributed significantly to the index’s rise, benefiting from a larger-than-anticipated energy price cap increase. Prudential’s improved business profits and expanded buyback plans further supported the upward trend, although its dividend growth forecast slightly tempered enthusiasm. A shift away from consumer goods stocks, however, indicated a potential change in investor sentiment, which could influence future trading patterns.
GOLD is exhibiting mixed signals, suggesting potential volatility. While prices experienced a slight dip, they remain near recent highs as investors anticipate the upcoming PCE data, a key indicator influencing Federal Reserve policy. Uncertainty surrounding the relationship between the US administration and the Federal Reserve, including a legal challenge to a Fed Governor’s potential dismissal, is also providing a degree of support. Increased market expectations for a rate cut in September, fueled by dovish comments from Fed officials, further contribute to upward pressure. Simultaneously, strong Asian demand, particularly the significant surge in China’s gold imports, is bolstering the metal’s value. The interplay of these factors suggests a market sensitive to economic data releases and policy signals, with the potential for both upward and downward price movements.