Europe Roundup: Sterling Drops, European Shares Fall, Gold Steadies, Oil Prices Extend Gains – October 7th, 2024
Currency Market Overview
The euro dipped against the dollar on Monday amid a strong U.S. labor market report and escalating Middle East tensions, which bolstered the greenback. Recent U.S. labor data eased fears of a recession, curbing rate-cut expectations. Traders are now considering a 25 basis-point rate cut by the Federal Reserve in November, shifting from last week’s higher expectations. Concurrently, a 25 bps rate cut by the European Central Bank (ECB) is almost fully priced in, given the faster-than-expected easing of inflationary pressures. The ECB is likely to cut rates on October 17 due to weak economic growth, increasing the risk of inflation undershooting its 2% target, according to French Central Bank Chief Francois Villeroy de Galhau.
Investor morale in the Eurozone saw an unexpected rise in October after continuous declines for three months, fueled by rising expectations despite dissatisfaction with the current situation. Immediate resistance for EUR/USD is seen at 1.0933, with potential for a rise towards 1.1044 if broken. On the downside, support is observed at 1.0955, with a fall to 1.0916 possible upon a break.
Sterling also dropped against the dollar as attention turned to geopolitical risks and central bank monetary policies. The pound recorded a significant fall last week following Bank of England Governor Andrew Bailey’s statement hinting at more aggressive rate cuts to lower borrowing costs. Bailey’s remarks led to a substantial unwinding of long positions on the pound, making it more vulnerable to sentiment shifts. Market-moving releases, including jobs data and the consumer price index report, are anticipated next week. GBP/USD has immediate resistance at 1.3170 and support at 1.3020, with potential movements toward 1.3257 or 1.3004 respectively upon respective breaks.
The Australian dollar remained largely unchanged against the U.S. dollar as investors looked ahead to U.S. inflation data and comments from Federal Reserve officials. Federal Reserve officials speaking this week may offer further interest rate trajectory insights, while U.S. September inflation figures due Thursday are also in focus. Minutes from the Fed’s September meeting—expected on Wednesday—are anticipated to shed light on its recent rate cut. Markets currently anticipate a negligible chance of a 50 bps rate cut by the Fed next month following last Friday’s robust U.S. jobs data.
The dollar slightly eased against the yen as markets digested Friday’s U.S. jobs report, which has strengthened the belief in the U.S. economy’s resilience and the likelihood of a soft landing. As a result, outsized Federal Reserve rate cuts are now less expected. The market awaits this week’s Federal Reserve policy meeting minutes, and data on the U.S. Consumer Price Index and Producer Price Index is keenly anticipated. Traders now see a high probability of a quarter percentage point rate cut by the Fed next month. USD/JPY sees key resistance at 149.76, with a potential rise towards 148.26, while support lies at 146.20, leading potentially to 145.32 upon a break.
Equities Recap
European stocks slipped on Monday as the optimism following strong U.S. jobs data last week began to subside, with sectors sensitive to interest rates like real estate and utilities facing pressure due to rising bond yields. The UK’s benchmark FTSE 100 was down by 0.44%, Germany’s DAX dropped by 0.21%, while France’s CAC slightly increased by 0.12%.
Commodities Recap
Gold prices remained steady on Monday, staying off recent record highs as the market anticipates a smaller interest rate cut from the U.S. Federal Reserve next month. Traders are also awaiting this week’s inflation data for further policy easing clues. Spot gold maintained a position around $2,651.48 per ounce as of 0940 GMT, descending from a record peak of $2,685.42 reached on September 26. U.S. gold futures increased approximately 0.2% to $2,671.70.
Oil prices extended gains with Brent crude approaching $80, continuing last week’s steepest weekly surge since early 2023. This rise has been driven by increasing fears of a broader conflict in the Middle East and potential disruptions to exports from this critical oil-producing region. Brent crude futures rose by $1.11, or 1.4%, to reach $79.16 a barrel by 0839 GMT, while U.S. West Texas Intermediate crude futures jumped by $1.28, or 1.7%, to $75.66.
