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Sterling pushed higher against the dollar as analysts predict the pound is on course to reach its highest level against the US currency since 2021.
The pound is expected to rise in value against the dollar over the next year, according to new forecasts from Goldman Sachs, offering potential relief for British holidaymakers facing exchange rate pressures.
The Wall Street banking giant predicts that sterling will strengthen to $1.40 within 12 months, up from its current level of around $1.33. This revision comes as part of a broader reassessment of the dollar’s outlook against a range of global currencies, including the euro and yen.
Goldman Sachs has lowered its expectations for the US dollar, pointing to what it describes as the Federal Reserve’s “demonstrated willingness to respond more aggressively” to economic risks compared to other major central banks. The Fed’s recent rate cuts, including a notable half-percentage point reduction last week, have already seen the pound rise by 1% against the dollar.
In contrast, Goldman believes the Bank of England (BoE) will maintain a more conservative stance. The BoE’s decision to keep interest rates unchanged last week, alongside a cautious tone on monetary tightening, underscores what the bank describes as a “patient” approach. The BoE signalled a “gradual” path to policy adjustments, reflecting a more measured response compared to the Fed’s swift rate cuts.
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Goldman Sachs expects this divergence in central bank policy to continue driving the dollar’s decline, with further US rate cuts likely to weigh on the greenback’s value over the coming months. The shift could benefit those exchanging pounds for dollars, with the pound potentially reaching its highest levels against the dollar in over a year.
Versus the euro, the pound (GBPEUR=X) was lower on Tuesday, entering correction territory after rallying to its highest against the European currency in more than two years in the early hours of Tuesday. It hit 1.2022 at around 6am before coming down.
Gold prices surged to a new record high in the early hours of Tuesday, propelled by dovish signals from US Federal Reserve officials and escalating tensions in the Middle East.
US gold futures were steady at $2,653 at the time of writing having earlier reached a fresh peak of $2,663 during the session. The precious metal had also touched an all-time high on Monday.
“Gold prices continue to be well-supported amid a series of dovish Fed rhetoric overnight,” said Yeap Jun Rong, market strategist at IG.
Fed officials reinforced expectations of further rate cuts, with Chicago Fed president Austan Goolsbee suggesting there are “lots of cuts” to come in the next 12 months. Minneapolis Fed president Neel Kashkari added that future policy adjustments would depend on economic data. Markets are currently pricing in 75 basis points of rate reductions by the end of 2024, according to the CME FedWatch Tool.
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The ongoing conflict between Israel and Hezbollah has added further momentum to gold’s rally, as investors seek safe-haven assets to hedge against the risk of broader regional conflict
“Tensions in the region will likely remain elevated, keeping gold’s bullish bias intact,” added Yeap Jun Rong.
As geopolitical uncertainty persists and expectations of further Fed rate cuts rise, gold is expected to maintain its upward trajectory.
Oil prices climbed on Tuesday after China unveiled a series of policy measures to support its economy and a major Israeli strike on Hezbollah targets in Lebanon heightened geopolitical tensions in the Middle East.
Brent crude rose above $74 a barrel, recovering from a 0.8% decline on Monday, while West Texas Intermediate (CL=F) hovered near $71. The rally was fuelled by the People’s Bank of China (PBoC), whose governor, Pan Gongsheng, announced a broad set of stimulus initiatives at a briefing in Beijing. The measures are aimed at achieving China’s annual growth target of around 5%, following concerns about the country’s faltering economy.
The stimulus package includes boosting bank lending to consumers and businesses, alongside a cut to the PBoC’s key short-term interest rate, in a bid to stimulate growth and drive energy demand in the world’s largest oil importer.
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“At the margin, this would be positive for China demand,” said Han Zhong Liang, an investment strategist at Standard Chartered in Singapore. “The feed-through from lower rates to the real economy will be key from here,” he added, Bloomberg reported.
Oil prices had been under pressure this quarter, with Brent and WTI both down around 14%, amid worries over the Chinese economy and expectations of increased output from OPEC+. The latest moves by Chinese authorities offer hope that demand from the key market could pick up, providing some relief for prices.
Meanwhile, the FTSE 100 (^FTSE) opened in the green, up 27 points or 0.33%. For more details check our live coverage here.
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