Asset Summary – Wednesday, 12 November
GBPUSD is facing downward pressure stemming from a combination of political and economic uncertainties within the UK. The potential challenge to the Prime Minister’s leadership creates instability, raising concerns about market reactions and possible increases in gilt yields. Simultaneously, unreliable labour market data, specifically the rising unemployment rate and doubts surrounding the accuracy of the Labour Force Survey, contribute to market volatility. These factors, coupled with increased expectations for a Bank of England rate cut in December, are negatively impacting the pound’s value against the dollar. Market participants are now closely monitoring upcoming Q3 GDP data to gain a clearer understanding of the UK’s economic trajectory before the budget announcement, adding further uncertainty that weakens the GBPUSD pair.
EURUSD’s outlook is bullish, supported by the euro’s resilience near recent highs. Market sentiment leans towards the expectation that the European Central Bank will maintain current interest rates due to a stable economy and inflation, which reduces the likelihood of rate cuts in the near future. This contrasts with growing anticipation for a potential Federal Reserve rate cut in the US, driven by weaker economic data. The diverging policy expectations between the ECB and the Fed are likely strengthening the euro against the dollar.
DOW JONES is positioned to potentially continue its upward momentum, following a record high close in the previous session. Futures contracts indicate a positive opening, suggesting further gains are expected. Optimism surrounding a potential resolution to the government shutdown is contributing to the positive sentiment. Furthermore, strong premarket performance of major technology stocks, some of which are likely included in the Dow Jones Industrial Average, is providing additional support.
FTSE 100 experienced a downturn following a record high, driven by a combination of political uncertainty and economic data concerns. Reports of a challenge to the Prime Minister created unease, particularly with the upcoming budget adding to the anticipation. Doubts surrounding the accuracy of new labor market figures, coupled with cautionary signals from a Bank of England official, further dampened investor sentiment. Losses were concentrated in key sectors such as energy and homebuilding, indicating vulnerability to both macroeconomic and sector-specific pressures. However, not all stocks declined, as evidenced by a significant rise in SSE shares following its renewables investment announcement, suggesting potential for growth within specific areas despite the overall negative trend.
GOLD is experiencing price support from increasing anticipation of a near-term interest rate cut by the Federal Reserve. Weakness in the labor market, as indicated by recent private sector job losses, reinforces expectations of these rate reductions. Market participants are pricing in a significant probability of a rate cut in the coming month. However, the impending restart of the US government following the end of the shutdown introduces some uncertainty. While the restart could alleviate some economic concerns, potentially reducing demand for safe-haven assets like gold, the overall trajectory suggests that gold is poised for a strong year.