Following a mixed Asian trading session, cautious optimism seems to carry over into Monday morning’s European trading session as investors continue to be careful as we begin a new week. In addition, the US market is closed on Martin Luther King Jr. Day, which helps to explain the muted trading activity.
Additionally, investors evaluate a wide range of recent fundamental issues and their effects on the financial markets, leaving the US Dollar (USD) searching for a distinct direction in relation to its main competitors.
Awaiting the release of the United Kingdom labour market data for the three months ending in November on Tuesday, investors are keeping a lid on the Pound Sterling (GBP). Investors anticipate a steep slowdown in wage growth and forecast further cooling of labour market conditions as a result of the Bank of England’s (BoE) higher interest rates and the growing problem of the cost of living in the face of persistent consumer inflation.
Soft pay growth figures would help the inflation rate move closer to 2% since lower earnings will eventually cause families’ purchasing power to shrink. Relentlessly higher wage growth has continued to be a key driver of sticky consumer price inflation, and its reduction will give BoE policymakers more comfort.
In the face of increased geopolitical tension in the Middle East, USD/CHF pair trades sideways; on Monday during the European session, it was trading at 0.8530. The US fighter plane intercepted an anti-ship missile fired by the Houthi militia, supported by Iran, on Monday in the Red Sea, sparing both the military ship and the aircraft damage. This crisis arises from the military strikes that the US and the UK carried out on Friday on Houthi targets led by Iran. The demand for the safe-haven currency, the Swiss franc (CHF), is thought to have increased as a result of these occurrences.
As traders continued to hold out for early interest rate cuts by the Federal Reserve, gold prices gained in Asian trade on Monday, recovering the majority of their losses from the start of the year due to ongoing concerns in the Middle East.
Demand for the yellow metal surged as hostilities between the United States and the Houthi group, who are allied with Iran, intensified during the past week, raising the possibility of a spillover into the Israel-Hamas conflict.
Due to the mixed U.S. inflation data, traders continued to mainly hold onto their predictions that the Fed may start reducing interest rates as early as March 2024. This helped to keep the dollar weak and encouraged some capital flows into rate-sensitive assets.