Pound (GBPUSD=X)

The British pound held firm around $1.26 on Tuesday, hovering around its highest level in two months, as traders digested a mixed labour market report.

UK wages surged at their fastest pace in eight months, intensifying pressure on Bank of England governor Andrew Bailey to tackle inflation. According to the Office for National Statistics, pay excluding bonuses rose by 5.9% for the three-month period ending in December, up from the 5.6% in the September-to-November period.

This uptick in wage growth raises concerns that higher pay could fuel inflation expectations, pushing the Bank of England to maintain interest rates at 4.5%.

Read more: UK pay growth accelerates, adding to inflation concerns

The unemployment rate remained unchanged at 4.4%, defying expectations of a rise to 4.5%. Investors were worried about the employment data as business owners had been disappointed with chancellor Rachel Reeves’s announcement of a raise in employers’ contributions to national insurance. In the autumn budget, Reeves increased employers' social security contributions by 1.2% to 15%, which will come into effect from April.

Meanwhile, sterling was higher against the euro (GBPEUR=X) on Tuesday morning, at €1.20.

Gold (GC=F)

Gold prices remained elevated above the crucial $2,900 mark, as concerns over a potential trade war continued to fuel demand for the precious metal as a safe haven.

The spot price of gold rose 0.5% to $2,912.33 per ounce, while gold futures climbed 0.8% to $2,923.00.

The latest surge was driven by fears surrounding US president Donald Trump’s trade policies, particularly his planned tariffs on trading partners. While Trump has signalled that reciprocal tariffs will not be imposed until April, tensions remain high, with investors seeking protection in gold.

Compounding the anxiety, reports surfaced over the weekend that the European Union is contemplating import controls on certain US goods, further escalating fears of a global trade dispute.

Read more: FTSE 100 LIVE: Stocks tepid as US and Russia start talks on ending Ukraine war

Against this backdrop, Goldman Sachs (GS) raised its gold price forecast for year-end 2025 to $3,100 per ounce, up from a previous target of $2,890. The bank attributed the upward revision to "sustained central bank demand," forecasting that such demand could add 9% to the gold price by the end of the year, alongside a gradual increase in ETF holdings as the US Federal Reserve reduces rates.

UBS (UBS) has also revised its outlook, with analyst Joni Teves saying that gold has experienced "unprecedented market dislocations" after it set a record high in 2024. She anticipates that the bullish sentiment will continue into 2025, driven by the metal's status as a safe-haven asset amid a volatile global environment.