Sterling was muted against the dollar on Tuesday, trading just 0.03% higher at $1.2972 at the time of writing, reflecting a cautious market sentiment ahead of the autumn budget.
Market Outlook Ahead of Autumn Budget
Chancellor Rachel Reeves is expected to unveil plans to raise taxes and boost public spending, a strategy hinted at by Sir Keir Starmer during his speech in Birmingham on Monday. The prime minister warned about the necessity of making “tough decisions” to raise taxes, adding that this approach was crucial to avoid austerity measures and to help rebuild public services.
ING strategist Francesco Pesole said there was no political risk premium priced into the pound right now, while speculators are sitting on a fairly substantial bullish position in sterling futures, which could quickly get unwound if there is any disappointment stemming from the budget.
Investors will be monitoring the forthcoming spending plans, given their potential impact on the Bank of England’s (BoE) interest rate trajectory. A recent poll conducted by Reuters suggested that the BoE is poised to cut interest rates by 25 basis points to 4.75% in its upcoming meeting on November 7.
Interest Rate Trajectory and BoE’s Decision
This would represent the central bank’s second interest rate reduction of the year, following its decision to maintain the key borrowing rate at 5% during its last policy meeting in September.
Against the euro (GBPEUR=X), sterling was also muted, trading at €1.1996.
Gold Prices and US Presidential Election
Gold prices remained near record highs on Tuesday, buoyed by uncertainty surrounding the upcoming US presidential election as investors seek insights into the Federal Reserve’s interest rate direction.
“The lead-up to the upcoming US elections may continue to offer traction for its status as a hedge against market turbulence, further supported by a temporary breather in the US dollar and Treasury yields overnight,” said IG market strategist Yeap Jun Rong.
Market Insights on Gold Prices
“While stronger economic data may support more patience in Fed’s easing process, we may expect gold prices to stay supported, with rate expectations well-anchored around a smaller 25 basis points in November.”
Fed’s Rate Decision and Gold Market
With just eight days until the Fed’s rate decision, investors are awaiting a series of critical events to gauge their influence on the US central bank’s move.
Lower rates reduce the opportunity cost of holding gold, which is also seen as a safe asset during times of economic and political turmoil.
Current Situation in Middle East and Oil Prices
Crude oil prices were nursing losses on Tuesday after plummeting nearly $5 a barrel the previous session amid growing hopes that full-blown war in the Middle East can be avoided.
Brent crude futures rose by 0.4%, trading at $71.29 per barrel, while US West Texas Intermediate (WTI) (CL=F) gained 0.2%, reaching $67.51 per barrel during early European trading. Both contracts tumbled 6% on Monday to their lowest since 1 October.
The decline in prices was fueled by indications that the region may be stepping back from a dramatic escalation of conflict.
Geopolitical Developments and Oil Market
Meanwhile, the FTSE 100 (^FTSE) was higher at the open, gaining 0.2% to 8,298 points. For more details check our live coverage here.
Additionally, it is important to note that the upcoming US presidential election and the UK budget announcement are significant factors affecting the financial markets currently. Traders should continue to monitor these events closely for potential market impact.
