Daily Analysis 29/01/2025

• GBP/USD Price: The GBP/USD pair pauses its recovery around 1.2450 in Wednesday’s European session as the US Dollar retreats. Investor sentiment shifts as risk-off trades built around concerns over China's DeepSeek AI model’s affordability unwind, easing demand for safe-haven assets.
• BoE Rate Cut: Markets are pricing in a 25-basis point (bps) rate cut in the Bank of England’s (BoE) first monetary policy decision of 2025 on February 6. This would lower borrowing costs to 4.5% as policymakers respond to sluggish UK economic growth. Rate cut expectations could limit further GBP/USD gains.
• UK PM Starmer: UK Prime Minister Keir Starmer struck an optimistic tone in a Bloomberg interview, stating that the economy is starting to “turn around.” He emphasized the Labour government’s primary focus on economic growth, which could provide some support to the Pound.
• US Tariffs: White House Press Secretary Karoline Leavitt confirmed on Tuesday that planned 25% tariffs on Canada and Mexico remain in place for February 1, while US President Donald Trump is still considering a 10% tariff on Chinese imports starting Saturday. Trade tensions could influence market risk appetite and impact GBP/USD movements.
• Reeves's Speech: Investors will closely watch UK Chancellor of the Exchequer Rachel Reeves’s speech in Oxfordshire on Wednesday. She is expected to unveil new plans for the Oxford-Cambridge Growth Corridor, which could have long-term economic implications for the UK.

Closing statement: GBP/USD holds steady as traders weigh BoE rate cut expectations against economic optimism from UK officials. US tariff developments and Reeves’s economic policy announcements will be key drivers for GBP/USD in the near term. A sustained break above 1.2500 could signal further gains, while support remains near 1.2350.

• Gold Price: Gold prices remain slightly lower in early European trading on Wednesday but stay close to last week’s multi-month peak. The absence of strong follow-through selling suggests continued investor interest in safe-haven assets.
• Fed Rate Cut: Investors are in wait-and-see mode ahead of the Federal Reserve’s policy decision. Markets are pricing in two 25-basis point (bps) rate cuts this year, starting in June, per LSEG data. Any deviation in the Fed’s messaging could significantly impact gold’s price trajectory.
• Powell’s Press Conference: Federal Reserve Chairman Jerome Powell’s post-meeting press conference will be closely watched for clues on future rate cuts under President Donald Trump’s second term. The Fed’s stance on inflation and economic growth will be key for gold’s direction.
• Global Risk Sentiment: Gold continues to find support from a subdued US Dollar and stabilizing risk sentiment. Holiday-thinned market conditions persist, with China, Singapore, and Hong Kong closed for the Lunar New Year, potentially leading to lower liquidity.
• AI Market: Markets are recovering from the recent AI-driven sell-off triggered by China’s DeepSeek model. Meanwhile, investors are awaiting earnings reports from major US tech firms—Microsoft, Meta, and Tesla—due later in the US session, which could influence broader market sentiment.

Closing statement: Gold remains supported by Fed rate cut expectations, a weaker USD, and stabilizing risk sentiment. Traders will closely monitor Powell’s remarks for policy clues, with any dovish shift likely to drive gold higher, while stronger-than-expected US data could pressure XAU/USD lower.

• WTI Price: US West Texas Intermediate (WTI) crude oil prices edged lower in Asian trading on Wednesday, giving up part of the previous session’s gains. The decline follows a recent bounce from a nearly three-week low as market sentiment remains cautious.
• Trump’s Tariff Plans: US President Donald Trump announced plans to impose tariffs on pharmaceutical imports, advanced chips, and steel, aiming to boost domestic manufacturing. These measures add to global trade tensions, which could impact industrial demand and economic growth.
• Chinese PMI Data: Official Chinese Purchasing Managers’ Index (PMI) data released on Monday highlighted continued economic weakness in the world’s largest crude oil importer. The slowdown in Chinese demand remains a key factor capping oil price gains.
• US Inventories: The American Petroleum Institute (API) reported a 2.86 million-barrel increase in US oil inventories for the week ending January 24, a slightly smaller-than-expected build. Market participants now await the official inventory data release later on Wednesday for further direction.
• FOMC Decision: Traders remain on the sidelines ahead of the conclusion of the US Federal Reserve’s two-day monetary policy meeting. The Fed’s stance on interest rates and economic outlook could significantly influence oil prices through its impact on the US Dollar and broader market sentiment.

Closing statement: Crude oil remains pressured by weak Chinese economic data and trade policy uncertainties, while a lower-than-expected US inventory build offers some support. Traders are likely to wait for the FOMC decision before making decisive moves, with any Fed commentary on economic growth and inflation potentially shaping oil’s near-term trajectory.

• DAX Price: The German DAX index rose 0.70% on Tuesday, offsetting Monday’s 0.53% decline and closing at 21,431. The gain marks the ninth increase in eleven sessions, reflecting strong investor demand for Eurozone equities.
• AI Sector: Market concerns over a technology sector downturn eased as investors renewed interest in AI-linked stocks. DeepSeek’s low-cost AI model, which previously triggered a tech sell-off, continues to raise questions about AI spending and the valuation of US tech giants.
• GfK Consumer Confidence: The February GfK Consumer Confidence Index fell to -22.4, missing expectations of -20.0. Economic and income expectations, along with purchasing willingness, weakened in January, while savings sentiment improved slightly. This suggests ongoing consumer caution amid economic uncertainty.
• US Consumer Confidence: The US Conference Board’s Consumer Confidence Index fell from 109.5 in December to 104.1 in January, surprising markets. The decline in confidence could indicate weaker consumer spending, potentially reducing demand-driven inflationary pressures.
• Fed’s Interest Rate: Investors await the Federal Reserve’s rate decision and FOMC press conference on January 29. While the Fed is expected to maintain rates at 4.5%, market attention will be on Chair Jerome Powell’s statements regarding future rate adjustments and economic outlook.

Closing statement: The DAX continues its upward trend, driven by renewed AI stock demand, though weak German consumer sentiment remains a concern. With US consumer confidence also slipping, all eyes are now on the Fed’s policy decision, which could shape broader market sentiment in the days ahead.