Pound (GBPUSD=X)

Sterling is on track for its steepest weekly loss since July 2023, having fallen roughly 1.7% against the US dollar. The pound has dropped by 2.2 cents since the start of the week, reaching around $1.3146 at the time of writing. If this trend continues, sterling could slide to levels not seen since February 2023.

The currency’s decline has been driven by a combination of global investors seeking safe-haven assets and mounting expectations of more aggressive interest rate cuts by the Bank of England (BoE). Analysts are increasingly anticipating that the Bank will cut rates faster than previously forecast, a shift spurred by recent comments from governor Andrew Bailey.

Bailey indicated the central bank might adopt a "bit more aggressive" and "activist" stance in reducing rates as inflation pressures ease. This shift in tone has weighed on the pound, as markets recalibrate expectations for UK monetary policy.

Meanwhile, the US dollar has strengthened, bolstered by its status as a safe haven amid the ongoing conflict in the Middle East.

Read more: FTSE 100 LIVE: Oil prices gain as Israeli strikes on Lebanon intensify

“We've always thought that once the BoE became more comfortable with the path of inflation, it would signal a more aggressive rate-cutting cycle. Bailey’s comments are a clear move in that direction,” said Nick Andrews, senior FX strategist at HSBC.

Capital Economics suggested that the pound’s sharp fall reflects a broader correction, with sterling likely unwinding from a period of overvaluation. Despite this, the pound opened Friday slightly higher on hopes that a speech later in the day by BoE chief economist Huw Pill might offer a counterpoint to Bailey's more dovish tone, potentially providing a boost for the currency.

Sterling also bounced back against the euro (GBPEUR=X) in early trading, rising 0.2% to €1.1915 after losing almost 1% against the euro on Thursday, marking its sharpest daily decline against the single currency since December 2022.

Gold (GC=F)

Gold prices climbed on Friday, buoyed by heightened demand for safe-haven assets as the conflict in the Middle East intensifies and investors await the upcoming US payrolls report for clues on the Federal Reserve’s next move.

Spot gold edged up 0.3% to $2,662.72 per ounce at the time of writing, after touching a record high of $2,685.42 on September 26. The precious metal is on track for a 0.2% weekly gain, continuing its upward trajectory amid geopolitical uncertainty. US gold futures also advanced, rising 0.1% to $2,6820.90 per ounce.

Geopolitical tensions, particularly concerns surrounding Israel and Iran, are lending strong support to gold prices. With these risks unlikely to ease in the near term, analysts suggest that gold may remain near its record levels.

Read more: How to protect your investments in unstable markets

Gold is traditionally seen as a safe investment during times of political and financial uncertainty. Additionally, the metal tends to thrive in low interest rate environments, adding further support to its recent strength as markets assess the future path of US monetary policy.

Markets now estimate around a 65% chance that the Fed will opt for a modest 25 basis point rate cut in November.

Oil (BZ=F)

Oil prices are on track for their largest weekly gain in more than a year as the conflict in the Middle East escalates, with Israeli air strikes targeting Lebanon’s capital, Beirut.

Brent crude futures rose 0.7% to $78.23 a barrel, while US West Texas Intermediate (CL=F) crude climbed 0.6% to $74.34 per barrel during early European trading.

Crude prices have soared nearly 8% this week, marking their strongest rise since April 2023, driven by concerns that the conflict could widen across the Middle East. The risk of a broader regional war has heightened fears of supply disruptions in the global oil market.

Citigroup has estimated that a significant Israeli strike on Iran's oil export infrastructure could remove as much as 1.5 million barrels of daily supply from the market. Even a smaller-scale attack on minor infrastructure could result in a loss of 300,000 to 450,000 barrels per day.

Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank, said that “fears are mounting that Israel will target Iran’s oil production capabilities, striking where it hurts most – its economic lifeline".

Meanwhile, the FTSE 100 (^FTSE) was lower at the open, slipping 0.1% to 8,286 points. For more details check our live coverage here.

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