Sterling Bounces on Central Bank Comments; Oil Prices Rise Amid OPEC+ Meeting
The pound has been trading slightly higher against the dollar in early European trading, up nearly 0.3% to $1.2736, as investors digest comments from central bankers in both the UK and US.
According to a report by The Financial Times, Bank of England Governor Andrew Bailey is expected to announce four interest rate cuts next year, which could have implications for sterling's value. This move would be aimed at stimulating economic growth and mitigating the impact of rising inflation.
Meanwhile, Federal Reserve Chair Jerome Powell said in an interview on Wednesday that the US economy is "in very good shape" and there is no reason for it not to continue growing. However, he also noted that because the economy is stronger than initially thought earlier this fall, the Fed can afford to be a little more cautious.
This nuanced stance from Powell has led some investors to dial up the likelihood of a December rate cut by the Fed, with futures taking the probability to a three-week high of 77.5%. However, not all analysts are convinced that a rate cut is imminent, as Deutsche Bank Research's macro strategy team noted: "US Treasury yields fell across the curve thanks to some weaker than expected data."
In contrast, sterling has been flat against the euro (GBPEUR=X) on Thursday morning, trading at €1.2079, following a no-confidence vote in France's National Assembly. The government of Michel Barnier lost the vote for the first time since 1962, with 331 votes out of 577 in favor of ousting the government.
Deutsche Bank's macro strategists noted that the result was broadly expected and therefore didn't have much of an impact on markets. However, some analysts believe that the outcome could have longer-term implications for France's economy and its relationship with Europe.
Gold Prices Dip Amid Powell's Comments
Gold prices dipped slightly lower on Thursday morning, with investors weighing up the latest comments from Powell, as well as economic data releases. Spot gold edged 0.3% lower to nearly $2,642.62 per ounce, while US gold futures were trading 0.2% lower at $2.669.70 per ounce.
The November reading of the US Institute of Supply Management (ISM) services index on Wednesday came in weaker than expected, with the headline figure of 52.1 falling below a consensus forecast of 55.7. The employment component of this measure of US services growth was also down to 51.5.
Additionally, the latest US private payroll figures from provider Automatic Data Processing (ADP) were also weaker than expected at 146,000, compared to forecasts of 150,000. These readings come ahead of Friday's US jobs report, a closely watched measure of the labour market.
James Knightley, US chief international economist at Dutch banking group ING, said: "The Fed commentary this week has generally leaned dovish and if we do get a jobs report indicating roughly 100,000 of net job creation and the unemployment rate ticks up to 4.2%, as we expect, then a 25bp rate cut on 18 December looks probable."
Oil Prices Rise Amid OPEC+ Meeting
Oil prices rose on Thursday, as investors awaited a decision later in the day on what producer group OPEC+ will do on supply cuts. Brent crude futures climbed 0.2%, trading at $72.44 per barrel, while US West Texas Intermediate (WTI) (CL=F) climbed 0.2% to $68.70 per barrel at the time of writing.
The Organisation of Petroleum Exporting Countries (OPEC) and its allies — collectively known as OPEC+ — is set to meet on Thursday to discuss its production policy for the first quarter of 2025. Many analysts expect OPEC+ to extend its current supply cuts through at least the end of March, which would aim to support oil prices amid weaker-than-expected global demand.
Regional Instability and Market Movements
In broader market movements, the FTSE 100 (^FTSE) had a muted open, trading at 8,341.39 points. However, investors are also monitoring the conflict in the Middle East, as Israel's military actions in Lebanon continue despite a cease-fire agreement.
Lebanese prime minister Najib Mikati confirmed on Tuesday that diplomatic efforts are underway to address Israeli violations of the truce, with hopes to secure Israel's withdrawal from border towns. However, Israeli defense minister Israel Katz warned that Israel would target Lebanese state infrastructure if the cease-fire collapsed, further stoking fears of regional instability.
Conclusion
The pound has been trading slightly higher against the dollar in early European trading, up nearly 0.3% to $1.2736, as investors digest comments from central bankers in both the UK and US. Gold prices dipped amid Powell's comments, while oil prices rose ahead of OPEC+ meeting. The conflict in the Middle East continues to be a source of concern for regional stability and global markets.
The outcome of OPEC+ meeting will have significant implications for oil prices and global demand. Additionally, the impact of rate cuts by central banks on inflation and interest rates remains a topic of debate among analysts.