Daily Analysis 03/09/2025

• GBP/USD Price: GBP/USD faces renewed selling pressure, slipping toward 1.3365 during Wednesday’s European session. The pair is weighed down by domestic and global bond market turbulence.
• UK Bonds: UK Gilt yields surged to multi-decade highs as concerns over fiscal credibility and widening deficits triggered a global bond sell-off. The spillover into European and US debt markets amplified investor caution, keeping Sterling under pressure.
• Political Developments: PM Starmer reshuffled his Downing Street and Treasury team, raising speculation that Chancellor Reeves—who represents a more fiscally disciplined stance—could be sidelined. This adds uncertainty around the upcoming Autumn Budget and UK fiscal outlook.
• UK Focus: Markets are eyeing the final Services PMI and remarks from BoE Deputy Governor Sarah Breeden. These will be closely watched for clues on the UK’s economic resilience and potential shifts in BoE policy stance.
• US Data: Across the Atlantic, the spotlight falls on the JOLTs job openings report for July, a key gauge of labor demand that will shape Fed expectations. A softer reading could weigh on the dollar, offering Sterling temporary support.

Closing statement: GBP/USD trades under downside pressure near 1.3365, with UK fiscal and political uncertainty amplifying volatility. While PMI and BoE commentary may provide near-term direction, broader momentum will hinge on US labor market data and its implications for Fed policy.

• XAU/USD Price: Gold prices continue their historic rally, breaking above $3,530 per ounce and reaching fresh record highs. The bullish momentum reflects strong safe-haven flows and dovish Fed expectations.
• Manufacturing Data: The ISM Manufacturing PMI for August rose modestly to 48.7 (from 48.0 in July), but still missed expectations. Sub-index improvements in employment, new orders, and inventory balances suggest potential for production recovery, yet the headline remains in contraction territory.
• US Tariffs: US Treasury Secretary Scott Bessent expressed confidence that the Supreme Court will uphold Trump’s use of the 1977 IEEPA to impose sweeping tariffs. This adds to trade war risks, reinforcing gold’s appeal as a hedge.
• US Data: Beyond headline PMI, traders are closely watching sub-indices for labor, demand, and inflation signals. The upcoming Nonfarm Payrolls (NFP) report on Friday is expected to be the pivotal driver shaping September Fed rate expectations.
• Fed Policy: The CME FedWatch Tool shows markets pricing in a 91% chance of a 25bps rate cut at the September meeting, despite persistent inflation risks. This dovish tilt underpins gold’s continued upside.

Closing statement: Gold’s surge past $3,530 highlights its role as a safe-haven amid trade frictions, weak US factory data, and heightened Fed easing bets. The trajectory will hinge on labor market data and inflation dynamics as traders position ahead of NFP and the Fed meeting.

• Crude Oil Price: WTI crude extended losses in Wednesday’s early European session, trading at $65.00 per barrel, down from Tuesday’s $65.35. The market remains sensitive to trade headlines and global demand signals.
• China’s Services: China’s General Services PMI rose to 53 in August from 52.6, reflecting early success of Beijing’s demand-support measures. Stronger service-sector activity could underpin oil demand expectations, though the improvement remains modest.
• US-China Trade: China’s chief negotiator Li Chenggang met US officials last week, fueling cautious optimism over trade progress. However, President Trump’s skepticism toward the upcoming China Summit risks curbing expectations for improved US-China trade terms.
• US-India Trade: Trump targeted India, criticizing delays in tariff concessions after New Delhi suggested lowering US duties to zero. His comments followed the China Summit, where India, Iran, and Russia sought closer ties to counterbalance US trade dominance—raising broader geopolitical risks for oil flows.
• Iran Sanctions: The US Treasury sanctioned Waleed al-Samarra’i, accused of operating vessels transporting Iranian oil through shell firms. This latest round of sanctions highlights Washington’s continued clampdown on Iran’s crude exports, adding uncertainty to Middle Eastern supply.

Closing statement: WTI crude’s dip to $65.00 underscores fragile sentiment as markets weigh modest Chinese demand improvements against persistent trade frictions and geopolitical headwinds. Sanctions on Iran and Trump’s hardline stance on India suggest supply risks remain elevated, even as demand-side signals show tentative recovery.

• DAX Price: The DAX continues to slide, trading near 23,615 on Wednesday despite attempts to stabilize after Tuesday’s decline. Momentum remains weak as investors weigh political and inflation risks.
• Index Composition: JPMorgan analyst Pankaj Gupta expects changes in the DAX this September, with Scout24 and Gea likely joining the index, replacing Porsche AG and Sartorius. Such reshuffling reflects shifts in market capitalization and sector performance within German equities.
• ECB Policy: Hotter-than-expected German CPI and Eurozone HICP readings fueled uncertainty around ECB’s next moves. Markets reassessed the probability of further rate cuts, dampening sentiment.
• ECB Commentary: ECB board member Isabel Schnabel reiterated that current rates are already mildly accommodative, suggesting no urgent case for additional cuts. Her stance highlights the bank’s cautious approach amid inflation concerns.
• Political Risk: French PM François Bayrou faces a likely confidence vote defeat, raising political uncertainty in Europe. Reuters polls indicate most French citizens now favor new national elections, adding to regional risk sentiment.

Closing statement: The DAX’s slide to 23,615 underscores persistent investor caution, with inflation data complicating ECB rate expectations and French political instability weighing on European risk appetite. Index reshuffling and upcoming ECB decisions could set the tone for September trading.