Pound (GBPUSD=X)

The pound remained slightly above the flatline against the dollar in early European trading on Tuesday, at $1.2541, as market activity remained subdued in the run-up to the Christmas holiday. The pair is still down nearly 7% from its September highs near $1.3400, reflecting ongoing pressure on sterling.

The dollar continues to hold near a two-year high, buoyed by the Federal Reserve's signals that it plans to slow the pace of interest rate cuts in 2025. This hawkish stance from the Fed has provided the greenback with steady support, keeping the pound on the back foot.

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In contrast, the pound faces headwinds from the Bank of England's (BoE) recent decision to keep interest rates unchanged, coupled with a dovish outlook that has contributed to a more negative near-term outlook for the GBP/USD pair. The BoE's split vote decision has reinforced concerns about the UK economy's fragility, further undermining confidence in sterling.

Elsewhere, the pound remained flat against the euro (GBPEUR=X), trading at €1.2053, with limited movement in the pair as both currencies were largely range-bound during the light trading conditions.

Gold (GC=F)

Gold prices saw a modest uptick on Tuesday, as traders adjusted their expectations for the US Federal Reserve's monetary policy in 2025, factoring in the possibility of a slower pace of interest rate cuts.

The spot price of gold rose nearly 0.1%, reaching $2,618.16 per ounce, while gold futures climbed 0.2%, trading at $2,632.90 per ounce.

Despite this slight recovery, the precious metal remains under pressure from a stronger US dollar, which continues to weigh on the market, according to Pranav Mer, analyst at JM Financial Services in Mumbai.

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Earlier this month, the Fed signalled a reduction in the number of rate cuts anticipated in 2025, with chairman Jerome Powell highlighting that the central bank requires more evidence of easing price pressures before taking further action. Historically, lower borrowing costs tend to benefit gold, which offers no yield and thrives in a low-interest-rate environment.

Gold has had a strong year, setting successive records and positioning itself to close 2024 more than 25% higher. The rally has been driven by a combination of US monetary easing, safe-haven demand amid global uncertainties, and central bank purchases.

However, the pace of its ascent has recently slowed as the dollar gained strength, particularly following the election of Donald Trump, which added to market volatility and shifted investor sentiment.