Pound ( GBPUSD=X )
Sterling was muted against the dollar on Tuesday, trading just 0.01% higher at $1.299 in the afternoon, reflecting a cautious market sentiment ahead of the autumn budget.
Chancellor Rachel Reeves is expected to unveil plans to raise taxes and boost public spending, a strategy hinted at by Sir Keir Starmer during his speech in Birmingham on Monday. The prime minister warned about the necessity of making "tough decisions" to raise taxes, adding that this approach was crucial to avoid austerity measures and to help rebuild public services.
ING strategist Francesco Pesole said there was no political risk premium priced into the pound right now, while speculators are sitting on a fairly substantial bullish position in sterling futures, which could quickly get unwound if there is any disappointment stemming from the budget.
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"Sterling continues to look vulnerable ahead of tomorrow’s budget event and next week’s US election, and risks remain skewed to a move to $1.2800-1.2850," he said.
Investors will be monitoring the forthcoming spending plans, given their potential impact on the Bank of England's (BoE) interest rate trajectory. A recent poll conducted by Reuters suggested that the BoE is poised to cut interest rates by 25 basis points to 4.75% in its upcoming meeting on November 7.
This would represent the central bank's second interest rate reduction of the year, following its decision to maintain the key borrowing rate at 5% during its last policy meeting in September.
Against the euro ( GBPEUR=X ), sterling had also only edged slightly higher in afternoon trading, up 0.3% to trade at €1.2033.
Gold ( GC=F )
Gold prices hit a fresh high on Tuesday afternoon, buoyed by uncertainty surrounding the upcoming US presidential election as investors seek insights into the Federal Reserve's interest rate direction.
Spot gold was up by 0.8% at $2,764.57 per ounce at the time of writing, but had topped $2,771 earlier in the day, while US gold futures rose 0.7% to $2,773.
"The lead-up to the upcoming US elections may continue to offer traction for its status as a hedge against market turbulence, further supported by a temporary breather in the US dollar and Treasury yields overnight," said IG market strategist Yeap Jun Rong.
"While stronger economic data may support more patience in Fed's easing process, we may expect gold prices to stay supported, with rate expectations well-anchored around a smaller 25 basis points in November."
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With just eight days until the Fed's rate decision, investors are awaiting a series of critical events to gauge their influence on the US central bank's move.
Markets are pricing in about 99% chance of a 25 basis points rate cut by the Fed, according to CME's FedWatch Tool.
Lower rates reduce the opportunity cost of holding gold, which is also seen as a safe asset during times of economic and political turmoil.
Oil ( BZ=F )
Oil prices recovered some ground in afternoon trading on Tuesday, as focus for investors pivoted back onto possible stimulus in China and global supply.
Brent crude futures rose by 0.2%, trading at $71.14 per barrel, while US West Texas Intermediate (WTI) ( CL=F ) gained 0.3%, reaching $67.58 per barrel during afternoon trading in Europe.
Both contracts tumbled 6% on Monday to their lowest since 1 October. The decline in prices was fuelled by indications that the region may be stepping back from a dramatic escalation of conflict. Over the weekend, Israel launched retaliatory airstrikes against Iran, but notably refrained from targeting key oil and nuclear facilities, which helped to avoid disrupting energy supplies.
In response, Iran's leadership indicated it was weighing its options, reporting that the Israeli attacks resulted in only "limited damage." This statement was interpreted as a sign that Tehran is hesitant to allow the conflict to escalate further.
According to Bloomberg, Dennis Kissler, senior vice president for trading at BOK Financial Securities, said: “The selloff yesterday was overdone, so we’re seeing a corrective phase back to equilibrium."
"The stimulus from China is also a helping factor," he added.
Another area of renewed focus is whether the Organization of the Petroleum Exporting Countries + (OPEC+) alliance will go forward with to plans to hike supply in December, having previously cut output.
Meanwhile, the FTSE 100 ( ^FTSE ) was trading lower in the afternoon, falling 0.5% to 8,241 points. For more details check our live coverage here .
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