Forex News
Deutsche Bank economists Sanjay Raja and Maui Brennan expect UK inflation to move higher in October, driven by energy, tobacco and modest food and services gains. They forecast headline CPI at 3.80% year-on-year, with Core CPI and Services CPI also rising. Looking ahead, they see headline CPI pushing closer to 4.25% early next year, with price pressures remaining sticky.
Deutsche Bank flags renewed inflation pressures
"After broadly matching expectations in September, we expect UK inflation to rise further in October."
"What’s the story? The October inflation story will feature three main drivers. First, energy prices are set to push even higher as we enter the final quarter of the year, with the Ofgem Price Cap up, heating oil prices up, and petrol and diesel prices up too. Second, tobacco duty will also be a prominent feature of the October inflation report, with higher duties on vapes and tobacco kicking in."
"Where do we see inflation going in October? We expect headline CPI to have risen to 3.80% y-o-y (Sep-26: 3.48%). Core CPI, we think, will have jumped by 2.87% y-o-y (Sep-26: 2.78%). Services CPI, we project, will have edged up to 3.87% y-o-y (Sep-26: 3.72%)."
"Looking ahead, more inflation is coming. We continue to see headline CPI pushing closer to 4.25% y-o-y at the start of next year. Headline prices will also likely remain sticky, as food prices push higher, and core goods start to see some of the impacts of higher energy prices impact retail prices."
"Index-linked price rises will also keep services momentum from slipping too far."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD may rise as hotter US inflation data and hawkish Fed commentary boost December Fed rate hike bets.
- Falling crude oil prices, fueled by surging OPEC+ output and easing US-Iran tensions, weigh on the Canadian Dollar.
- Rising Canadian inflation at 3.1% boosts Bank of Canada rate hike bets, softening downside pressure on the CAD.
USD/CAD holds steady around 1.4250 during Thursday's Asian trading session after posting two consecutive days of gains. Despite the pause, the pair could resume its upward climb as the US Dollar (USD) may draw strength from an increasingly hawkish Federal Reserve (Fed) policy outlook.
Following hotter-than-expected US Consumer Price Index (CPI) inflation data, traders have ramped up bets on a December rate hike, especially after Fed Governor Christopher Waller noted earlier this week that he would back a quarter-point increase, or even a half-point move if inflation worsens. According to the CME FedWatch Tool, markets are now pricing in around an 87% probability of a December rate hike, alongside a nearly 13% chance of a larger 50 basis point increase.
According to TD Securities, the US Dollar still has scope to advance against select majors, with analysts highlighting that “across global major currencies, we see room for the USD to rally selectively against CAD and KRW in the near-term.” They argue that “diverging employment data releases will likely keep USDCAD supported above 1.40,” as Canada’s “rising unemployment rate amid falling wage growth rate” undermines the case for tighter policy. In their view, this backdrop “reduces the market pricing of a December BoC rate hike relative to the Fed,” leaving the Canadian Dollar vulnerable while USDCAD remains underpinned at elevated levels.
Moreover, the USD/CAD pair may further appreciate as the commodity-linked Canadian Dollar (CAD) faces headwinds from falling crude oil prices. Oil has pulled back as the US and Iran appear to be avoiding further escalation, while supply has simultaneously expanded.
According to OPEC’s monthly report released on Wednesday, OPEC+ crude production surged by roughly 2.04 million barrels per day in October to reach 41.23 million barrels per day, driven largely by higher output from Saudi Arabia.
On the domestic front, the CAD is finding some underlying support as traders also price in a potential Bank of Canada (BoC) rate hike. Annual inflation in Canada edged up to 3.1% in September from 3.0% in August, marking its highest reading since May's 3.2%. Meanwhile, the Democratic Party's victory in the US mid-term elections may help ease trade pressures on Canadian economic growth.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 6.7174 compared to the previous day's fix of 6.7191 and 6.6797 Reuters estimate.
(This story was corrected on November 12 at 01:26 GMT to say that PBOC sets USD/CNY reference rate at 6.7174, not 6.774.)
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
Japan's top currency diplomat Atsushi Mimura said on Thursday that recent currency moves, including those of the past few days, are too rapid.
Key quotes
Forex fluctuations are too rapid.
Recent moves are too rapid.
Market reaction
No major reaction is seen in the Japanese Yen (JPY) following remarks from Japan's Mimura.
(This story was corrected on November 12 at 01:25 GMT to say that Japan's top currency diplomat Atsushi Mimura said on Thursday that recent currency moves, including those of the past few days, are too rapid, not Wednesday.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- WTI dropped as the US and Iran are currently avoiding further military escalation.
- Iran refused to surrender enriched nuclear material and demanded lifted sanctions and an ended blockade before reopening Hormuz.
- OPEC+ October output jumped by 2.04 million barrels daily to 41.23 million, led by Saudi Arabia despite disruptions.
West Texas Intermediate (WTI) oil price extends it losses for the fifth consecutive day, trading around $85.00 per barrel during Asian hours on Thursday. Crude oil prices have declined as the United States (US) and Iran remain deadlocked in negotiations, though both sides are currently avoiding further escalation.
While Washington insists that nuclear issues must be part of any initial talks aimed at ending their war, a senior Iranian security official rejected this key condition, stating that Tehran would not allow a single atom of its enriched nuclear material to leave the country. Iran has also reiterated that the US must lift its sanctions and end the naval blockade before the Strait of Hormuz can be reopened.
OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, crude oil production jumped in October. According to OPEC's monthly report released on Wednesday, the alliance pumped 41.23 million barrels per day in October. This marks an increase of about 2.04 million barrels per day from September, led primarily by a sharp rise in output from Saudi Arabia.
Oil risk stays elevated as US–Iran tensions threaten further escalation
Analysts at Rabobank caution that the geopolitical backdrop around Oil remains highly unsettled, noting that “presuming this was achieved last weekend, where other reports suggest the US was moments away from striking, that means we could still be looking at more fighting by mid- to end-November, at which time a third US aircraft carrier will be in the region.” They characterise this potential timeline and build-up of US military assets as “a distressing report,” underscoring that markets cannot yet discount the risk of renewed escalation in US–Iran tensions.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- GBP/USD flatlines near 1.3275 in Thursday’s early Asian session.
- BoE’s Greene says it is appropriate to proactively tighten our monetary policy stance.
- Traders have boosted bets on a 25 bps Fed rate hike in December to 87.3%.
The GBP/USD pair holds steady around 1.3275 during the early Asian session on Thursday. Traders continue to assess the monetary policy path from the Bank of England (BoE) and the US Federal Reserve (Fed). The preliminary reading of UK Gross Domestic Product (GDP) for the third quarter (Q3) will be released later on Thursday.
BoE policymaker Megan Greene said on Wednesday that it was appropriate to "proactively tighten our monetary policy stance" to ward against the risk of wage growth getting stuck at higher levels and firms passing those costs on. Hawkish comments from Greene could provide some support to the Cable against the USD in the near term.
On the US front, traders raise their bets on a Fed rate hike in December following hotter than expected US Consumer Price Index (CPI) inflation data. Fed Governor Christopher Waller said earlier this week that he would support a quarter-point rate increase in December and might push for a half-point move if inflation data is worse than expected.
Markets are now pricing in nearly an 87.3% chance of a Fed rate increase in the December policy meeting, while the probability of a 50 bps hike stands at 12.7%, according to the CME FedWatch Tool.
"We've got broad-based strength in the dollar largely underpinned by a hawkish shift in Fed fund rate expectations driven by the hot October CPI print but amplified as well by recent comments by Fed officials," said Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co.
UK rates steady as markets eye Bailey speech and global data slate
Strategists at Societe Generale note that UK rates are starting the week on a stable footing, with the "10y IRS opens unchanged at 4.70% after holding 4.69% (100dma) last week." They highlight nearby technical levels, citing "support 4.58%, resistance 4.78%," and point out that Governor Bailey "speaks in Zurich later today, first intervention since the MPC rate increase week," a key event for Sterling and UK rates traders.
Looking ahead, Societe Generale flags a busy global data calendar, with the "week ahead: US CPI, PPI, Fed speak incl Waller and Williams. EU 3Q GDP second read. UK prel 3Q GDP. China trade balance. CPI for Mexico, Norway, Czech Republic, Hungary, India." In the UK specifically, they focus on Thursday’s growth release, where "prel 3Q GDP" is due and SG "forecast 0.7% qoq," providing an important gauge of domestic momentum following the recent MPC decision.
Greene flags proactive tightening as UK wage risks rise
BoE's Greene delivers a strongly hawkish signal, with a 9.4/10 FXS Speechtracker score notably above the historic 7.7/10 baseline. The emphasis on “proactively tighten our monetary policy stance” marks a clear shift toward tighter policy guidance.
The remark that UK wage growth is “too high” and that labor market slack is smaller than previously thought reinforces the case for earlier and more forceful action. This combination of persistent wage pressures and reduced slack supports a stronger Pound bias as markets price in a higher probability of additional BoE tightening.
Technical Analysis: GBP/USD maintains a bearish bias below the 100-day SMA
In the daily chart, GBP/USD keeps a bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger middle band. The pair is consolidating in the lower half of the recent Bollinger envelope, with the lower band offering nearby demand, while the Relative Strength Index (14) at 43 suggests subdued, mildly negative momentum rather than oversold conditions.
On the topside, initial resistance is clustered around the Bollinger middle band at 1.3370, followed by the 100-day SMA at 1.3400, with a stronger cap emerging at the Bollinger upper band near 1.3475. On the downside, immediate support is seen at the Bollinger lower band at 1.3260; a decisive break beneath this floor would open the way for a deeper slide, while sustained trading above it would keep the pair in a range, albeit still pressured by overhead moving-average resistance.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Iranian Armed Forces Deputy Chief of Staff Brigadier General Kioumars Heidari said that Tehran has closed the Strait of Hormuz and will not open it except by the order of the leader of the revolution, Al Jazeera reported on Wednesday.
Meanwhile, Iran's parliament speaker and top negotiator, Mohammad Bagher Ghalibaf, stated that the critical waterway will "never return" to its status prior to the US-Israel war on Iran.
Senior Iranian officials believe the US is planning either further military strikes or an ever-tightening economic stranglehold that will push Tehran into retaliatory action.
Separately, the Saudi-led coalition intercepted and destroyed a drone over Saudi Arabia's oil-rich Eastern province amid an escalation in cross-border attacks. The source also said debris fell after destruction of two ballistic missiles aimed at Mecca.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is down 0.10% on the day at $85.25.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Rabobank’s FX Strategy team argues that reduced fears of political interference at the Federal Reserve and evidence of renewed safe-haven demand support the Dollar. The bank notes that concerns over the US budget deficit and treasury market stresses could weigh on the Dollar over the medium term, but concludes that last year’s Dollar debasement fears were exaggerated.
Fed credibility and safe-haven dynamics
"Diminished fears about political interference on the Fed is a supportive factor for the USD. In addition, at the start of the Gulf war, strong demand for the USD undermined last year’s claims that the USD’s had lost at least part of its safe haven value. In our view the USD’s safe haven appeal is linked to its embedded position in global payments systems, which could take decades to shake."
"Reduced concerns over the credibility of the greenback should allow it more opportunity to benefit from the US’s robust economic growth performance. In addition, in our view, the stresses that the EUR could face in the coming months could support a preference for long USD positions."
"There is still a risk that concerns related to the US’s unwieldly budget deficit could weigh on the USD over the medium-term. The US budget deficit at over 6% of GDP is wider than that of France. However, for decades the US has benefitted from the ‘exorbitant privilege’ of being able to fund its debt at relatively low yields, due to strong demand for its debt."
"There are signs that this ‘privilege’ has slipped. These manifest in changing yield spreads vs. other bond markets and signs of stress in the treasury market. Indeed, there have been notable incidences of uncomfortable selloffs in the US treasury market over the past 19 months or so."
"Either way, last year’s dollar debasement fears appear exaggerated."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Bank of England's (BoE) Monetary Policy Committee (MPC) member, Megan Greene, said on Wednesday that it was appropriate to "proactively tighten our monetary policy stance" to ward against the risk of wage growth getting stuck at higher levels and firms passing those costs on.
Key quotes
It is appropriate to proactively tighten our monetary policy stance to lean against the risk of wage growth getting stuck at higher levels.
Data shows wage growth in the UK is too high.
There is less labor market slack than thought.
It's appropriate to proactively tighten monetary policy.
Market reaction
At press time, the GBP/USD pair trades 0.51% lower at around 1.3275.
Greene flags proactive tightening as UK wage risks rise
BoE’s Greene delivered a notably more hawkish message, with a 9.4/10 FXS Speechtracker score versus a 7.7/10 historic average, signaling a clear shift toward tighter policy. The emphasis that wage growth in the UK is “too high” and that labor market slack is “less than thought” underscores concern that inflationary pressures could become entrenched.
The call to “proactively tighten” the monetary policy stance to prevent wage growth from getting stuck at elevated levels reinforces a pre-emptive, hawkish bias. For GBP, this raises the prospect of higher-for-longer rates or additional hikes, supporting the currency on expectations that the BoE will lean more aggressively against persistent domestic inflation risks.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
- Gold price slumps to around $3,985 in Thursday’s early Asian session.
- Hotter-than-expected US CPI inflation data strengthened expectations that the Fed will raise rates in its December policy meeting.
- The US October PPI inflation data will be in the spotlight on Friday.
Gold price (XAU/USD) tumbles to near $3,985 during the early Asian session on Thursday. The precious metal extends its downside as persistent inflation forces the US Federal Reserve (Fed) to maintain its tightening policy.
The US Consumer Price Index (CPI) rose 0.4% MoM in October after advancing 0.6% in September, the Labor Department's Bureau of Labor Statistics reported on Tuesday. This figure came in hotter than the 0.3% expected and strengthened expectations that the Fed will raise interest rates next month.
“CPI came out a little hotter than expected, and the market is interpreting that it warrants higher rates at the December meeting,” said StoneX Senior Market Strategist Bob Haberkorn.
Bets on a 50-basis-point Fed rate hike in December began to build after Fed governor Christopher Waller said he would support more aggressive action if CPI came in too hot. Higher interest rates typically undermine the precious metal by making interest-bearing assets more attractive.
The probability of a 25 bps rate hike is fully priced in, while the possibility of a 50 bps hike rose to 12.7% from 0% before the data, according to the CME FedWatch Tool.
Traders will take more cues from the release of the US October Producer Price Index (PPI) inflation data on Friday for fresh impetus. If the report shows hotter-than-expected outcomes, this could exert some selling pressure on the yellow metal in the near term.
Gold shines as risk-off tone weighs on equities and supports bonds
Analysts at Deutsche Bank note that while "credit was actually fairly flat on both sides of the Atlantic," the broader "risk-off tone in equities meant it was a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August." They add that, "along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world." Even so, Deutsche Bank points out that "the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type," underscoring the mixed cross-asset backdrop into the latest session.
Goolsbee flags ‘real inflation issue,’ pushing Fed tone deeper into hawkish territory
Fed’s Goolsbee delivered a distinctly more hawkish message, with an 8/10 FXS Speechtracker score standing notably above the 6.8/10 historical average and underscoring rising concern about persistent price pressures. The emphasis that the latest CPI was “borderline disturbing,” that services inflation is “not coming down,” and that “we have a real inflation issue on our hands” signals growing discomfort with underlying inflation dynamics even as the job market is described as steady and stable. Repeated references to dealing with persistent inflation and the risk of expectations becoming unanchored reinforce a bias toward keeping policy tight and leaving the door open to further action, a backdrop that tends to support the Dollar against lower-yielding peers.
The FXS Fed Sentiment Index rose by 1.69 points to 145.61, keeping the policy tone firmly in hawkish territory well above the neutral 100 mark. The combination of an elevated FXS Fed Sentiment Index and an above-baseline FXS Speechtracker score suggests markets should continue to price a higher-for-longer Fed path, a configuration that is typically constructive for the Dollar and a headwind for risk-sensitive currencies.
Technical Analysis: Gold retains a negative outlook below the 100-day SMA
In the daily chart, XAU/USD remains under clear downside pressure, holding below the 20-day Bollinger simple moving average and the 100-day simple moving average, which together reinforce a bearish near-term bias. Price is compressing in the lower half of the Bollinger envelope, while the 14-day Relative Strength Index at 43 stays below the midline, hinting at subdued but not oversold bearish momentum.
On the topside, initial resistance is located at the Bollinger middle band around $4,055, followed by the 100-day SMA at $4,200 and the upper Bollinger band near $4,215. On the downside, the next notable support emerges at the lower Bollinger band, now seen close to $3,895, where sellers may be tempted to take some profit if the decline extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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