Is gold’s surge redrawing the global currency map?
Key takeaways
USD – Gold surge, rate cut expectations, and tariff concerns keep the dollar on the back foot
The US dollar index is heading for its largest weekly decline since June, driven by several factors. Gold prices have surged to fresh record highs, perhaps reflecting market expectations that central banks may continue to reduce USD reserve holdings. Also, Federal Reserve officials yesterday broadly endorsed a rate cut at the end of the October meeting, reinforcing dovish sentiment.
The government shutdown remains unresolved, and concerns over regional banks have resurfaced. Two institutions announced earnings write-downs linked to distressed commercial mortgage fund loan fraud, reviving memories of the 2023 collapses of Silicon Valley Bank, Signature Bank, and First Republic.
The S&P Regional Banks Select Industry Index fell 6.3% on Thursday, its worst drop since April’s tariff-driven equity sell-off.
In Canada, Governor Tiff Macklem’s comments at the Peterson Institute offered little surprise, but his assessment of weak growth did nothing to dampen expectations of another impending rate cut. Despite broad USD weakness, the Canadian dollar continues to underperform.
GBP – Political instability weighs on sterling; BoE speakers in focus
Political uncertainty continues to pressure sterling. The collapse of the Chinese spying trial has added to the UK government’s challenges, with the latest opinion poll placing Labour behind Reform and the Conservatives, and level with the Green Party. Concerns over the upcoming Budget (26 November) are also weighing on sentiment.
Sterling is underperforming against the euro, yen, and Swiss franc. Today’s Bank of England speakers include Chief Economist Huw Pill, external member Megan Greene, and Deputy Governor Sarah Breeden. Pill will address the ICAEW, Greene speaks at an Atlantic Council roundtable, and Breeden joins a panel at the IMF and World Bank meetings.
Tomorrow, Governor Andrew Bailey is due to speak at the G30 International Banking Seminar, the final BOE speaking engagement before the pre-Monetary Policy Committee meeting media blackout.
While none of these speeches are expected to shift policy expectations, markets will monitor for any unexpected signals. GBP may remain under pressure in the near term.
EUR – CPI to confirm inflation is anchored; ECB’s Lane remains open to further cuts
Euro area CPI figures for September are expected to confirm that inflation remains close to the ECB’s target.
However, downside risks persist, and further declines in inflation could complicate the European Central Bank’s policy stance. Chief Economist Philip Lane reiterated yesterday that the ECB remains open to additional rate cuts, though any decision will be data dependent.
Labour market signals, such as rising unemployment, suggest more easing may be needed. At the same time, potential fiscal loosening in Germany and delays to tightening in France could offset some of the downside risks.
While the ECB’s swift action was expected to support growth, that outcome has yet to materialise. Should further cuts be considered, recent euro strength may be undermined, though current EUR performance appears more a function of USD and GBP weakness than euro resilience.
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