Sterling hit $1.34 against a weakening dollar for the first time since 2022 as Chinese monetary stimulus rippled through commodity markets and boosted several currencies.
“It remains to be seen whether China’s stimulus measures will prove permanent for global currencies, but evidence of a US economic slowdown continues to accumulate, suggesting investors are shifting to a dollar-selling mindset,” ING analysts said.
The pound has strengthened against the dollar in recent days amid growing expectations that the Bank of England (BoE) will implement a slower interest rate cutting cycle than the U.S. Federal Reserve (Fed). During the Asian session, the pound rose to $1.3430, its highest since March 2022, before falling to $1.3389 at the time of writing.
According to CME Group’s FedWatch tool, the market is currently pricing in a more than 75% chance that the Federal Reserve will cut interest rates by another 50 basis points in November.
Andrew Bailey said this week that the UK would cut interest rates “gradually”, warning consumers not to expect them to return to “near zero” levels.
Read more: FTSE 100 LIVE: European shares fall as optimism over China monetary stimulus fades
The pound (GBPEUR=X) fell against the euro but traders are increasingly betting the pound will outperform Europe’s and other major currencies as the British economy is expected to emerge stronger from the inflation crisis.
“With the Bank of England lagging behind developed market central banks in their easing cycle and the UK data largely performing well, at least relatively, it makes sense for it to signal a bearish view on the dollar and euro via the pound,” said Ray Attrill, head of currency strategy at National Australia Bank.
Gold prices rose to a record high after surging more than 1% in the previous trading session as weak U.S. data strengthened the case for further interest rate cuts.
At the time of writing, gold futures were up 0.2% to $2,681 an ounce, while spot gold was up 0.3% to more than $2,665 an ounce. Gold has surged almost 30% this year.
“Buyers are in control for now and we are not yet seeing signs of a major reversal. At a macro level, a weaker US dollar continues to drive prices higher, while technically trendline support from early September is holding,” said Chris Beauchamp, principal market analyst at IG.
“This remains to be tested, but upward pressure is likely to continue.”
Read more: UK stocks outperform FTSE All-Share index
Traders are investing in gold on the expectation that the Fed will cut interest rates further. Lower interest rates tend to favor precious metals because they don’t earn interest. A weaker dollar also makes the metal cheaper for many buyers.
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“Rising gold prices have been the main driver of silver prices in recent weeks, but they rose further yesterday as weak consumer confidence raised hopes of interest rate cuts,” John Liang Han, an analyst at Standard Chartered Bank, was quoted as saying by Bloomberg.
Oil prices fell on Wednesday after gains the previous day as investors reassessed whether China’s latest stimulus package would effectively boost the economy of the world’s biggest oil importer and spur growth in fuel demand.
“In the absence of more concrete fiscal policy, concerns remain about whether the stimulus is sustainable,” said Yep Jun Rong, market strategist at IG.
Brent crude futures fell 0.4% to trade just above $74 a barrel, while West Texas Intermediate (CL=F) struggled to stay above $71.
“WTI crude’s early weakness on Wednesday follows a closing decline from Tuesday’s highs,” Beauchamp said.
“However, while the rally has slowed, it has not yet reached a ceiling and a return to a close below $70 could see it move back towards the September lows.”
“A recovery above $72 will likely see buyers regain control and push the price to test the 50-day SMA.” [simple moving average]” “.
Meanwhile, the FTSE 100 (^FTSE) opened in the red, down 0.2%. For more details, see our live coverage here.
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