The pound held steady against the dollar on Tuesday, trading just above the flatline at $1.2746 as investors awaited key US inflation data for November, due to be released on Wednesday.
Economists are anticipating that the annual headline Consumer Price Index (CPI) for November will show a slight acceleration to 2.7%, up from 2.6% in October. Core CPI, which excludes volatile food and energy prices, is expected to rise by a steady 3.3%. On a month-on-month basis, both headline and core inflation are forecasted to grow by 0.2% and 0.3%, respectively.
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Unless the figures deviate markedly from expectations, analysts do not foresee a significant shift in market sentiment regarding the Federal Reserve’s policy outlook. The consensus is that the Fed will proceed with a 25 basis point rate cut at its upcoming meeting on 18 December, bringing rates to a range of 4.25%-4.50%. According to the CME FedWatch tool, there is a nearly 90% probability of this outcome.
Meanwhile, sterling was little changed against the euro (GBPEUR=X), trading at €1.2083 ahead of the European Central Bank’s rate decision on Thursday.
Gold prices extended their gains on Tuesday, buoyed by China’s pledge to enhance policy stimulus in a bid to bolster economic growth, as investors also awaited US inflation data for clues on the Federal Reserve’s interest rate strategy.
Spot gold rose 0.7%, trading at $2,663.70 per ounce, while US gold futures increased by 0.1%, reaching $2,666.30 at the time of writing.
Gold had reached a two-week high on Monday, supported by the resumption of gold purchases by China’s central bank after a six-month hiatus. China’s commitment to adopting an “appropriately loose monetary policy” next year, alongside a more proactive fiscal policy, has added to the positive outlook for gold. The Politburo has also indicated a shift away from a “prudent” policy stance that has been in place for nearly 14 years.
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Kelvin Wong, senior market analyst for Asia Pacific at OANDA, explained that further interest rate cuts in China could lead to increased demand for gold. “Secondly, the safe-haven demand narrative has resurfaced as China has started a probe into the US AI juggernaut Nvidia (NVDA) over an alleged violation of anti-monopoly law, suggesting more tit-for-tat measures may arise between the US and China,” Wong said.
