Pound (GBPUSD=X)

Sterling has fallen sharply lower to its lowest level in two months after inflation fell by more than expected last month.

The pound fell 0.6% against the dollar, trading at $1.2991, having remained stable prior to the inflation figures.

The UK’s inflation rate dropped to 1.7% year-on-year in September, down from 2.2% in August. This figure marks the lowest inflation reading since April.

Read more: UK inflation drops below 2% target for first time since 2021

Traders will be calculating that September’s larger-than-expected drop in inflation makes it easier for the Bank of England to cut interest rates, which makes it less lucrative to hold sterling.

Joe Maher, assistant economist at Capital Economics, said: “We expect sterling to weaken by approximately 4% against the euro and about 1% against the dollar by the end of 2025.

“We anticipate yield gaps to move against sterling, particularly in relation to the euro, over the next year. Our view is that the Bank of England will lower interest rates by significantly more than what is currently reflected in money markets.”

Sterling was also lower against the euro (GBPEUR=X), slipping 0.5% to €1.1940 at the time of writing.

Gold (GC=F)

Gold prices steadied near record highs during early European trading, recovering some of their recent losses as traders continued to bet on further interest rate cuts by the Federal Reserve.

At the time of writing, spot gold was trading at $2,677.14 per ounce, reflecting an increase of 0.6%. Meanwhile, US gold futures rose 0.5% to $2,691.10.

The yellow metal had reached record highs in September but has since fluctuated within the low-to-mid $2,600 per ounce range as market participants adjusted their expectations for the pace of rate cuts. The dollar surged to two-month highs on this sentiment, adding pressure on metal markets.

Despite this, traders remain optimistic that US interest rates will gradually decline, providing potential upside for gold and other non-yielding assets. This outlook has kept gold prices close to their recent peaks.

Read more: What are the benefits of share buybacks?

While concerns over escalating geopolitical tensions in the Middle East have spurred some safe-haven demand for bullion, this has been counterbalanced by a stronger dollar, bolstered by indications of resilience in the US economy.

Market data from CME FedWatch indicates that traders are pricing in a 91.1% likelihood that the Fed will implement a 25 basis point rate cut in November.

Oil (BZ=F)

After erasing nearly all gains from the previous week, oil prices opened Wednesday's trading session with cautious gains as traders shifted their focus back to the unfolding situation in the Middle East.

Brent crude futures rose 0.3%, settling at $74.46 a barrel, while US West Texas Intermediate (WTI) (CL=F) crude edged 0.3% higher to $70.81 per barrel during early European trading.

Tuesday's slump was triggered by disappointing news from China, where consumer prices rose less than anticipated, indicating sluggish consumer demand. This was compounded by the International Energy Agency's (IEA) third consecutive downward revision of its global oil demand forecast for 2024.

Adding to the market’s uncertainty, a report from the Washington Post revealed that Israel had told the United States it would refrain from targeting Iranian oil infrastructure in its retaliatory strikes. This announcement initially dampened the so-called wartime premium on oil prices. However, Israel subsequently stated that it would retain the discretion to make its own decisions regarding potential strikes on Iran, reigniting speculation about possible targets.

Yeap Jun Rong, an analyst at IG, said: “Prices still lack a bullish catalyst for now, as market participants fade the risks of disruptions in Middle East energy supplies, while China’s fiscal stimulus efforts seem to lack clarity.”

Meanwhile, the FTSE 100 (^FTSE) was higher at the open, rising 0.7% to 8,305 points. For more details check our live coverage here.

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