Pound (GBPUSD=X)

The pound weakened against the dollar in early European trading on Thursday, slipping 0.2% to $1.2654. The move came as the US dollar gained traction following the latest inflation data, which indicated robust consumer spending in October but also underscored ongoing challenges in reducing inflation—keeping the Federal Reserve on high alert.

The US Personal Consumption Expenditures (PCE) Price Index, a key gauge of inflation, rose by 2.3% year-over-year in October, up from 2.1% in September. The core PCE Price Index, which excludes volatile food and energy prices, increased by 2.8%, slightly surpassing the previous month’s 2.7% rise. At the same time, the US economy showed continued strength, with third-quarter gross domestic product (GDP) growing at the expected annualised rate of 2.8%.

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Despite the dollar's strength, there could be some opportunity for the pound to recover in the near term, as US markets are expected to experience lighter trading volumes ahead of Thursday's Thanksgiving holiday and shortened session on Friday.

The pound-dollar exchange rate is down 6% from its October highs after markets cut expectations for Federal Reserve rate cuts following data that showed the US economy was showing signs of fresh strength.

Meanwhile, the pound pushed higher against the euro (GBPEUR=X), trading at €1.2007.

Gold (GC=F)

Gold prices fell on Thursday as investors digested a slew of economic data pointing to persistent US inflation, which could lead the Federal Reserve to take a more cautious approach to further interest rate cuts.

Spot gold declined 0.3%, trading at $2,638.27 per ounce, while US gold futures dropped 0.1% to $2,661.30 at the time of writing.

The focus in the market has shifted to the Fed’s potential rate cuts, with the latest core PCE data indicating a slowdown in inflation. This has led to speculation that the Fed’s monetary policy next year may be less dovish than previously expectated, according to Kelvin Wong, senior market analyst for Asia Pacific at OANDA.

The central bank’s ongoing struggle to bring inflation back to its 2% target, coupled with the possibility of higher tariffs under Donald Trump's administration, could further limit the Fed’s capacity to implement rate cuts in 2024.

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Markets are currently pricing in a 68.2% chance of a quarter-point rate cut in December, according to the CME Group’s FedWatch tool.

Investor sentiment remains wary, with concerns that president-elect Trump's proposed tariff measures could weigh on the global economic outlook. Additionally, the ongoing Russia-Ukraine conflict continues to add uncertainty,.