The British pound held firm around $1.26 on Tuesday, hovering around its highest level in two months, as traders digested a mixed labour market report.
UK wages surged at their fastest pace in eight months, intensifying pressure on Bank of England governor Andrew Bailey to tackle inflation. According to the Office for National Statistics, pay excluding bonuses rose by 5.9% for the three-month period ending in December, up from the 5.6% in the September-to-November period.
This uptick in wage growth raises concerns that higher pay could fuel inflation expectations, pushing the Bank of England to maintain interest rates at 4.5%.
Read more: UK pay growth accelerates, adding to inflation concerns
The unemployment rate remained unchanged at 4.4%, defying expectations of a rise to 4.5%. Investors were worried about the employment data as business owners had been disappointed with chancellor Rachel Reeves’s announcement of a raise in employers’ contributions to national insurance. In the autumn budget, Reeves increased employers’ social security contributions by 1.2% to 15%, which will come into effect from April.
Meanwhile, sterling was higher against the euro (GBPEUR=X) on Tuesday morning, at €1.20.
Gold prices remained elevated above the crucial $2,900 mark, as concerns over a potential trade war continued to fuel demand for the precious metal as a safe haven.
The spot price of gold rose 0.5% to $2,912.33 per ounce, while gold futures climbed 0.8% to $2,923.00.
The latest surge was driven by fears surrounding US president Donald Trump’s trade policies, particularly his planned tariffs on trading partners. While Trump has signalled that reciprocal tariffs will not be imposed until April, tensions remain high, with investors seeking protection in gold.
Compounding the anxiety, reports surfaced over the weekend that the European Union is contemplating import controls on certain US goods, further escalating fears of a global trade dispute.
Read more: FTSE 100 LIVE: Stocks tepid as US and Russia start talks on ending Ukraine war
Against this backdrop, Goldman Sachs (GS) raised its gold price forecast for year-end 2025 to $3,100 per ounce, up from a previous target of $2,890. The bank attributed the upward revision to “sustained central bank demand,” forecasting that such demand could add 9% to the gold price by the end of the year, alongside a gradual increase in ETF holdings as the US Federal Reserve reduces rates.
UBS (UBS) has also revised its outlook, with analyst Joni Teves saying that gold has experienced “unprecedented market dislocations” after it set a record high in 2024. She anticipates that the bullish sentiment will continue into 2025, driven by the metal’s status as a safe-haven asset amid a volatile global environment.
“After missing several buying opportunities in 2024, investors are likely wary of repeating the same patterns and may want to take advantage of corrections sooner this time around,” Teves said.
Gold prices have already surged by 10% in 2025.
Oil prices edged higher, building on gains from the previous session, as a drone attack on a Russian oil pipeline pumping station disrupted flows from Kazakhstan. However, the gains were capped by concerns over potential increases in supply in the near future.
Brent crude futures rose 0.9%, reaching $75.38 per barrel, while US West Texas Intermediate (WTI) crude climbed 1%, to $71.43 per barrel.
The increase followed a period of price weakness, with market participants reacting to news of the drone strike on Kazakhstan’s export pipeline, which has led to reduced supply from the region.
“The overriding theme driving oil prices lately has been around supply expectations,” said Yeap Jun Rong, market strategist at IG. “With the weakness in prices over the past weeks, news of a drone strike on Kazakhstan’s export pipeline in Russia has provided the catalyst for some bearish sentiment to unwind.”
Despite the brief price surge, analysts remain cautious. BMI Research forecasted that Brent crude prices would average $76 per barrel this year, down 5% from the 2024 average, citing oversupply, tariffs, and trade tensions as factors weighing on the market.
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Sentiment was further influenced by reports that OPEC+ (Organisation of the Petroleum Exporting Countries and its allies) is considering extending current production cuts beyond the first quarter of 2024. The strategy aims to stabilise oil prices amid uncertainties around global demand.
However, Russian deputy prime minister Alexander Novak stated that OPEC+ does not plan to delay the scheduled monthly supply increases set for April.
“There is seemingly plenty to be bearish about in the crude market, the biggest factor now being the outcome of Ukraine negotiations,” said Neil Crosby, an analyst at Sparta Commodities. “Russian oil may partially come back to the legitimate market, though there are of course many permutations as to the end result here”.
In broader market movements, the FTSE 100 (^FTSE) was lower on Tuesday morning, retreating 0.1% to 8,760.72 points. For more details, check our live coverage here.
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