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Sterling edged down slightly on Friday as fresh data highlighted the UK’s economic struggles, raising concerns about potential interest rate cuts by the Bank of England at its upcoming meeting.
The pound dipped 0.1% against the dollar, trading at $1.3049 following the announcement that UK GDP grew by a modest 0.2% in August.
Despite being the best-performing major currency of 2024, buoyed by the Bank of England’s cautious approach to interest rates — with only one cut so far this year — traders are wary.
The GBP/USD pair remains just above its monthly low of 1.3010, while the outlook remains uncertain as the US dollar continues to show strength. The US Dollar Index (DX-Y.NYB), which measures the greenback against six major currencies, is holding steady near the 103.00 mark.
Read more: UK economy returns to growth in August
Meanwhile, the US dollar’s firm position is bolstered by unexpectedly robust US Consumer Price Index (CPI) data for September, which has diminished prospects for a 50 basis point rate reduction by the Federal Reserve at its November meeting.
On a more positive note, sterling managed to gain some ground against the euro (GBPEUR=X), rising 0.1% to €1.1936 in early trading.
Gold prices advanced in early European trading, building on overnight gains as strong US inflation data was tempered by weaker labour market readings.
At the time of writing, spot gold was up by 0.1% at $2,642.80 per ounce, while US gold futures rose 0.6% to $2,655.90.
Despite these gains, gold prices are poised to finish the week marginally lower, as investors anticipate smaller rate cuts from the Federal Reserve in the coming months.
The latest consumer price index data reinforced this expectation, but was counterbalanced by labour market figures showing a larger-than-expected rise in weekly jobless claims. This discrepancy raises the possibility of the Fed adopting a more aggressive stance on lowering borrowing costs.
Read more: FTSE 100 LIVE: Stocks open lower as construction pushes UK economy out of stagnation
In the aftermath of the economic reports, the swaps market is pricing in a 25 basis point rate cut at the Fed’s November meeting.
The economic calendar also featured commentary from Fed officials, with Chicago Fed president Austan Goolsbee indicating a preference for gradual cuts over the next 18 months, given that inflation is nearing the Fed’s 2% target.
New York Fed president John Williams echoed this sentiment during a recent appearance in Binghamton, New York, stating that the timing and pace of any future interest rate adjustments will depend on evolving data, the economic outlook, and the associated risks in achieving the Fed’s goals.
Oil prices fell on Friday as Libya resumed oil production and markets evaluated the impact of Hurricane Milton’s damage, alongside ongoing geopolitical tensions in the Middle East.
Brent crude futures lost 1.2% to $78.43 a barrel, while US West Texas Intermediate (CL=F) crude retreated 1.25% to $74.89 per barrel during early European trading.
“Investors are weighing the potential impact of hurricane damage on the US economy and fuel demand,” Hiroyuki Kikukawa, president of NS Trading, told Reuters.
He added that oil prices are likely to remain around current 200-day average levels, with concerns focusing on the possibility of Israeli retaliation against Iranian oil facilities.
In another development, Libya’s National Oil Corporation (NOC) reported that production has been restored to nearly pre-crisis levels, reaching 1.22 million barrels per day (bpd) as of Thursday.
Meanwhile, the FTSE 100 (^FTSE) was lower at the open, slipping 0.1% to 8,227 points. For more details check our live coverage here.
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