Pound (GBPUSD=X)

The pound rose 0.2% against the dollar at the start of a pivotal week, reaching $1.2644. Investors are bracing for key decisions from both the Federal Reserve and the Bank of England (BoE), as well as a series of significant economic reports.

The Federal Reserve is set to announce its policy decision on Wednesday, with markets largely expecting the US central bank to lower interest rates for the third consecutive meeting. However, there is growing speculation that the pace of future rate cuts could slow in 2025.

Meanwhile, the Bank of England is expected to keep its interest rates unchanged when it meets on Thursday. The BoE has reiterated its cautious approach to rate reductions amid persistent inflation concerns. Inflation expectations have been rising, partly due to chancellor Rachel Reeves' budget, which is projected to put upward pressure on prices next year.

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Beyond the central bank meetings, investors will be closely watching a host of economic data releases. This Monday, the UK’s flash PMI readings will offer a snapshot of economic activity, while Tuesday will bring the latest UK employment figures and US retail sales. On Wednesday, UK consumer inflation data will provide further insight into price pressures, ahead of Thursday’s final US GDP print. The week will conclude with the release of UK retail sales on Friday.

Meanwhile, sterling was flat against the euro (GBPEUR=X), trading at €1.2017.

Gold (GC=F)

Gold prices showed little movement during early European trading on Monday, as investors remained focused on the US dollar ahead of the Federal Reserve’s final meeting of the year.

Spot gold edged up 0.4%, trading at $2,659.08 per ounce, while US gold futures were largely unchanged at $2,675.40. The Fed is widely expected to adopt a cautious stance on future easing, suggesting that rates could remain elevated for the foreseeable future.

Higher interest rates tend to be bearish for gold, as they increase the opportunity cost of holding non-yielding assets like the yellow metal. The anticipation of sustained high rates has supported the dollar in recent sessions, adding downward pressure on gold prices.

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Despite the current weakness, analysts at ANZ remain bullish on gold’s long-term prospects. In a recent note, they forecasted a moderate return of around 10%, with prices potentially reaching a record $2,900 per ounce in 2025.

Geopolitical risks, including rising tensions in the Middle East and uncertainties surrounding president-elect Trump’s trade policies, are also expected to support gold demand, analysts said. These factors are likely to keep the precious metal attractive as a safe-haven asset, helping to offset the negative impact of higher rates and a strong dollar.