US and European futures are trading higher as the risk-on rally is the central theme among investors and traders in the mood for bargain hunting. Yesterday, we saw a decent rally over on Wall Street, which pushed all the major stock indices higher, and today we are experiencing a continuation of this rally. Traders have brushed away concerns about the Fed increasing the interest rate aggressively and how that will cut into the economic growth of the biggest economy, the US.
The British Pound saw another positive day yesterday, and traders are pushing the currency higher today as there is more and more optimism building up about the UK’s economy after the lawmakers have made a U-turn on their mini-budget. In addition, traders hope that the government’s central budget will be designed to bring the country back on track and not favour the rich.
The chancellor of the Exchequer finally threw in the towel, yielded to all the political pressure, and decided that it was no longer possible to continue to fight his vision of the mini-budget. The 45p in the Pound on earnings above 150,000 is here to stay, and the hope is that this will end the country’s sky-high borrowing cost.
The main thing that traders need to pay attention to now is the damage to Liz Truss’s credibility and her team’s new government. Traders and investors are thinking about how long this government will last and if it can heal its wounds after the latest round of disappointment which triggered a sort of warning from institutes like the IMF.
On the fundamental side, increasing the tax rate and now that the expectations are that the actual budget will be more designed to take care of the country’s borrowing will adversely influence economic growth in the country. Austerity doesn’t allow the country to grow. But then again, the kind of austerity we have seen for Greece during the European crisis does provide some hope for the UK economy to grow despite strict measures.
The previous metal also experienced a stellar rally yesterday as the dollar index eased off from its high. However, it is true to see a rally in gold prices when equity markets are rallying simultaneously, as gold is supposed to act like a safe haven. Nonetheless, yesterday, we saw the most substantial rally in gold prices in more than a week, which has brought the yellow metal’s price close to its important resistance of 1,700. The critical question is whether the price can break above this resistance.
Today, several FOMC members are coming into the spotlight and presenting their assessments of the US economy. Traders will listen to their comments very closely and assess the Fed’s next monetary policy move. Any further hawkish commentary by FOMC members William and Mester will likely push the dollar index higher, which will trigger a brief sell-off in gold prices.
Oil prices are also increasing today as traders are optimistic about OPEC’s meeting, which will mainly focus on oil production. Traders believe the cartel will likely announce its most significant oil production cut since covid-19. This should help the oil supply and demand equation which the slowdown has adversely influenced the global economy.