Pound Struggles Amid Dollar Resurgence, but Barclays Remains Bullish

The British pound has faced a setback against the US dollar after a week of gains, as the American currency rose following confirmation of a 3% year-on-year expansion in US economic activity during the second quarter of 2024. Despite the pound's recent struggles, Barclays has reaffirmed its bullish stance, citing the Bank of England's (BoE) "hawkish hold" as a key factor driving demand for the currency.

Pound Faces Headwinds, but Barclays Sees Opportunity

Pound Loses Momentum Against the Dollar

The British pound (GBP/USD) has lost ground against the US dollar after a period of gains, with the currency pair trading around the $1.3412 level, which represents the September 2022 low. According to Alex Rudolph, a market analyst at IG, the pound has "run out of steam" at this level, as the US currency strengthened following the positive economic data. However, Rudolph noted that if the $1.3412 level is overcome, the next target for the pound could be the $1.3515 peak seen in December 2019.

Pound Gains Against the Euro

In contrast to its performance against the US dollar, the British pound has pushed higher against the euro (GBP/EUR), trading at 1.2009 at the time of writing. This strength is likely due to the Bank of England's (BoE) recent policy decision, which has been viewed as relatively hawkish compared to other major central banks.

Barclays Maintains Bullish Stance on the Pound

Barclays has reaffirmed its bullish stance on the British pound, stating that it is maintaining its "long GBP exposure versus the EUR" following the BoE's Monetary Policy Committee (MPC) meeting. The bank highlighted the BoE's "hawkish hold" as a key factor driving demand for the pound, as the central bank opted to keep interest rates unchanged while signaling the potential for further tightening in the future.According to Barclays, the BoE's commitment to controlling inflation, even as price growth shows signs of slowing and economic activity remains resilient, sets it apart from other major central banks that are nearing the end of their rate-hiking cycles. This stance, the bank believes, provides the pound with a "carry advantage," making it an appealing currency for investors seeking higher returns.Furthermore, Barclays anticipates a "slow and relatively shallow cutting cycle" in the future, suggesting that any rate cuts will be gradual, offering continued support for the British currency.

Gold Prices Remain Firm, Driven by Rate Cut Expectations

Gold prices have held firm on Friday, following a record high in the previous session. The precious metal's rally has been driven by increasing market expectations of another substantial US interest rate cut later this year. Investors are now turning their attention to a crucial inflation report that could provide further guidance for gold's trajectory.Spot gold remained stable at $2,665 at the time of writing, following a peak of $2,685 on Thursday – the highest price on record. Gold prices have surged by over 29% year-to-date, repeatedly breaking records on the back of US rate-cut anticipation, robust safe-haven demand, and significant central bank purchases.The primary catalysts for gold's rally this year include mounting speculation of further interest rate cuts by the US Federal Reserve, as well as increased demand for gold as a safe-haven asset amid economic volatility. Central bank buying has also played a significant role in pushing gold prices to new heights.

Oil Prices Decline Amid Supply-Side Pressures

Oil prices are down, with Brent crude slipping by 0.2% to $70.94 per barrel, while the US West Texas Intermediate (CL=F) lost 0.3% to $67.50 at the time of writing. Both benchmarks are poised for weekly declines, as the market grapples with increased output expectations from Libya and OPEC+ against new stimulus measures from China.Brent crude has shed approximately 3.7% this week, while WTI is set for a steeper drop of nearly 5.7%, reflecting the market's focus on supply-side pressures. "Oil markets are paying more attention to Libya and OPEC this week, despite China's stimulus efforts," said Priyanka Sachdeva, senior market analyst at Phillip Nova.OPEC+'s recent decision to raise production has added to the bearish sentiment in a market already struggling with weakening demand. However, China's central bank moved to inject liquidity and lower interest rates in a bid to boost growth towards the government's 5% target for 2023. Further fiscal measures are expected ahead of China's National Day on 1 October, though uncertainty remains over whether these actions will significantly increase fuel demand.OPEC+ has been cutting output by 5.86 million bpd, but plans to reverse 180,000 bpd of those cuts in December. Reports suggest Saudi Arabia, OPEC's de facto leader, may have abandoned its $100 price target in favour of regaining market share, causing a 3% price drop earlier in the week. However, Saudi officials have denied targeting a specific price, stating the increase in output does not signal a significant policy shift.