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Daily Wrap Up 17 December 2021

17 Dec 2021 03:57 PM

Restrictions playing on traders’ minds, gold shines

Stock markets are in the red as growing fears about tighter restrictions due to the coronavirus are weighing on sentiment. The jump in the number of new cases of the virus is making traders feel nervous, as there is a growing feeling that we are about to go through another difficult period of the pandemic. Several governments have re-introduced light restrictions, but there are concerns that measures could become more drastic. The omicron strain of the virus has been with us several weeks now, and there is a sense that things are going to get worse before they get better. The bearish mood that’s in circulation is in stark circulation to the optimism that was doing the rounds yesterday following on from the upbeat outlook issued by the Federal Reserve on Wednesday.

Gold enjoyed a positive run move yesterday, and that was mostly down to the weakness seen in the US dollar. Today’s bearish move in equities is the driving force behind the metal’s jump. In recent months, the metal has been held back by a stronger US dollar, and there is speculation the Fed might look to hike rates in March. With that in mind, the greenback could be in for a bullish move in the weeks and months ahead, so that might put pressure on the yellow metal.

On Wednesday, the US dollar witnessed a spike in volatility as it initially jumped after the Fed update but then it endured a large reversal. The downward move was exacerbated by the surprise decision by the Bank of England to hike rates yesterday. Today, the US dollar is slowly pulling back its recent losses. It could be argued that a lot of positive news was already baked into the dollar ahead of the Fed meeting. Out of the major central banks, the Fed is in first place with respect potentially hiking rates next, so that should bode well for the greenback in the medium term.

Not surprisingly, sterling is down across the board following its very bullish move yesterday. This morning it was announced that UK retail sales increased by 1.4% last month, and that comfortably beat economists’ estimates of 0.8%. It is encouraging to see that consumers are willing to go out and spend as that is required to keep the momentum in the UK’s economic recovery.

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