Pound (GBPUSD=X)

The pound’s rally against the dollar appeared to be running out of steam on Monday as sterling was again weaker against the greenback in early trading.

The pound was 0.1% lower against the dollar at the time of writing, trading at $1.3107.

Traders are increasingly anticipating a quicker pace of monetary easing from the Bank of England, dampening the appeal of the pound, which has been the top-performing currency among the Group of Ten nations in 2024.

This shift in sentiment follows recent remarks by Bank of England governor Andrew Bailey, who indicated that the central bank could pursue a “more aggressive” and “activist” approach to interest rate cuts. These comments sent shockwaves through the market, resulting in the pound’s sharpest weekly decline since February 2023.

Nick Andrews, senior FX strategist at HSBC, described Bailey’s statements as both “deliberate” and “meaningful,” suggesting they could signal a pivotal moment for the currency.

Read more: FTSE 100 LIVE: Markets rise as UK house prices reach close to all-time highs

In recent months, investors have favoured the pound, bolstered by expectations that the Bank of England would ease rates more gradually than other central banks, thus preserving the currency’s relatively high yield. Following a substantial rate cut by the Federal Reserve last month, the pound surged to $1.3434, its highest level since February 2022.

However, current market indicators suggest a reversal may be underway. Options contracts reveal that traders are now paying a premium to hedge against a decline in the pound, with sentiment indicators like risk reversals sinking to two-month lows.

However, sterling managed to bounce back against the euro (GBPEUR=X) in early trading, rising 0.1% to €1.1953.

Gold (GC=F)

Gold prices dipped on Monday as traders adjusted their bets for a smaller US rate cut in November following stronger-than-expected jobs data, while awaiting further inflation insights and comments from Federal Reserve officials.

At the time of writing, spot gold was down 0.4% at $2,647.03 per ounce, while US gold futures slipped 0.1% to $2,664.40. The robust September jobs report, released on Friday, dampened hopes for a significant Fed rate cut next month and bolstered the dollar, with traders now assigning a 95% probability to a modest quarter-point reduction.

"Geopolitical tensions in the Middle East could drive safe-haven flows into gold, which may mitigate potential declines from a less-dovish market outlook," said Yeap Jun Rong, a market strategist at IG. Gold typically attracts investors during periods of low interest rates and heightened political and economic uncertainty.

Oil (BZ=F)

Oil prices continue to climb as traders await Israel’s response to Iran’s missile barrage last week amid ongoing fears about a region-wide war in the Middle East.

Brent crude futures rose 0.2% to $78.19 a barrel, while US West Texas Intermediate (CL=F) crude climbed 0.7% to $74.93 per barrel during early European trading.

Some analysts believe that OPEC+ spare capacity and US production could offset any immediate supply shocks. However, a broader regional conflict in the Middle East could lead to long-term disruptions in the oil markets.

An analyst from Kasikorn Securities said that if the Middle Eastern situation continues to escalate Iran may close the Hormuz Strait — an unprecedented move that may cause the global oil price to shoot up to greater than $100 per barrel but will not exceed $200 per barrel.

Hormuz Strait is the route for 20% to 30% of global crude oil exports from countries including Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates.

However, Suwat Sinsadok, deputy CEO at Beyond Securities, said that there is only a 20% to 30% possibility of Iran closing the Hormuz Strait.

Iran is one of the top 10 oil producers globally, with production exceeding 3.3 million barrels per day in August.

Read more: Oil stocks to watch as Biden signals backing for Israel’s retaliatory attack on Iran

Kelvin Wong, senior market analyst at Oanda, said: "No visible diplomatic signs or activities support the de-escalation of hostilities in the Middle East."

He also highlighted that the strong US non-farm payroll data released last Friday had reinforced the idea of a soft-landing economy, adding bullish sentiment to oil markets.

"Geopolitical risk premiums and 'US soft landing vibes' after a positive NFP print for September are supporting macro factors likely to underpin WTI crude oil's short-term bullish trend."

Meanwhile, the FTSE 100 (^FTSE) was higher at the open, climbing 0.3% to 8,267 points. For more details check our live coverage here.

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