Market update: Dollar drop increases gold’s shine ahead of Fed meeting
Susannah Streeter, chief investment strategist, Wealth Club: ‘’The dollar has shot off on another slippery slide, as Trump’s spin on the currency’s decline sparked another drop in confidence. The dollar’s drop is giving extra shine to gold, which is on a seemingly unstoppable run upwards. The pound is now at levels not seen since September 2021, touching $1.37 before falling back slightly. The sharp moves in currencies, with sterling strengthening are acting as a dampener on the FTSE 100. It puts pressure on the overseas earnings of listed multinationals, with pharma giants GSK and Astra Zeneca, chemicals company Croda, and fashion house Burberry among the fallers in early trade.
Trump sparks dollar’s slide
The US President said he’s comfortable with the weaker dollar, given that it will help exporters. But his simplistic attitude towards the currency’s trajectory is causing fresh concern. A sliding dollar also makes imports more expensive for ordinary Americans who are already bracing for the effect of higher tariffs to filter through to prices. It’s likely to have a fresh inflationary effect, and there are worries that the next chair of the Federal Reserve won’t be as tough against the risks of a rising spiral of prices. The Fed’s decision on interest rates is due later, and although a cut is not expected, there will be intense interest in current chair Jerome Powell’s comments about the inflationary risks ahead.
Tech sets the tone
The dollar’s decline acts as a squeeze on the wealth of investors whose portfolios are concentrated in the United States. For now, the continued gains in the share prices of the biggest listed giants are offsetting the impact. Tech continues to set the tone, with optimism around earnings reports due out this week boosting valuations and pushing the S&P 500 to fresh records. The majority of firms are exceeding expectations in this earnings beat so far and there are hopes that upcoming results from the likes of Meta, Microsoft and Apple will also show that huge sums spent on AI are helping boost profits.
Safe haven demand pushes up gold, again
But concerns are bubbling about just how sustainable returns fuelled by AI spend are. Combine this with worries about the longer-term trajectory of the US economy, with debt levels rising and inflationary risks hovering, finding other shelters to store capital is increasingly a trend. Gold is shining ever brightly, as central banks, institutions, and regular investors pile in. The weaker dollar is increasing demand from international investors, despite the rapid climb in prices. It’s racing up towards $5300 an ounce, with its allure proving super attractive with volatility set to stay a trend on markets.’’