Daily Analysis 25/02/2025

• GBP/USD Price: GBP/USD is holding firm above 1.2600 during Tuesday’s European session, supported by renewed US Dollar selling. However, market sentiment remains cautious as fears of a global trade war persist.
• UK Spring Budget: The upcoming Spring Budget may introduce downside risks for the British Pound. Chancellor Rachel Reeves could be forced to cut spending to avoid tax hikes, which might push the Bank of England (BoE) toward further policy easing amid a continuing disinflationary trend.
• Fed Rate Cut: Market expectations for an accelerated pace of Federal Reserve rate cuts in 2025 have taken a hit, as US President Donald Trump’s aggressive trade policies heighten global economic uncertainty.
• US Data: In the US, the Dallas Fed Manufacturing Index plunged 22 points to -8.3 in February, sharply reversing from a three-year high of 14.1 recorded in January. The data signals weakening economic activity, adding to speculation over the Fed’s policy path.
• Key Events: Traders will closely monitor the UK’s CBI Distributive Trades report and a speech by BoE Chief Economist Huw Pill for insights into monetary policy. In the US, the Conference Board (CB) Consumer Confidence data for February could influence broader market sentiment.

Closing statement: GBP/USD is benefiting from US Dollar weakness, but risks remain, particularly around the UK budget and trade war fears. Economic data and central bank commentary will be key drivers in the near term.

• XAU/USD Price: Gold prices retreat from recent all-time highs as traders lock in profits. However, ongoing concerns about Trump’s tariff plans continue to support the safe-haven appeal of the precious metal, limiting downside risks.
• Fed’s Goolsbee: Chicago Fed President Austan Goolsbee stated on Monday that the US central bank must take a "wait-and-see" approach before resuming rate cuts. His comments suggest that the Fed needs further economic clarity, which could influence gold’s price trajectory.
• Trump's Restrictions: Early Tuesday, Bloomberg reported that Trump’s administration is planning stricter restrictions on Nvidia chip exports to China and is pressuring Japan and the Netherlands to align with US policies on China tech limitations. The move fuels geopolitical uncertainty, potentially benefiting gold.
• US-Russia Peace Talks: The absence of meaningful progress in the second round of US-Russia peace negotiations regarding the Ukraine conflict continues to underpin demand for gold, reinforcing its role as a hedge against geopolitical instability.
• Key Events: Traders will closely monitor speeches from Fed Governor Michael Barr and Richmond Fed President Thomas Barkin for further clues on monetary policy. Additionally, Trump’s ongoing tariff discussions could influence gold’s movement, given their potential impact on risk sentiment.

Closing statement: Gold remains well-supported despite a pullback, with geopolitical tensions and trade concerns keeping safe-haven demand intact. Fed commentary and US-China trade developments will be key drivers in the near term.

• WTI Oil Price: West Texas Intermediate (WTI) crude oil trades around $70.90 in early European trading on Tuesday, continuing its recovery. The rise is fueled by concerns over potential near-term supply constraints.
• US Expands Sanctions: The US Treasury and State Departments announced new sanctions on Monday, targeting companies and individuals, including the head of Iran’s national oil company. These restrictions could limit Iranian oil exports, adding to global supply concerns.
• Peace Talks: Possible peace talks between the US and Russia over the Ukraine war might exert downward pressure on WTI. If sanctions on Russia ease, a full resumption of Russian oil exports could increase supply, capping crude oil gains.
• Trade War Fears: Traders remain cautious about further tariff measures from US President Donald Trump. A potential global trade war could dampen economic activity and, in turn, weigh on oil demand, limiting price gains.
• OPEC’s Supply Decision: Investors are awaiting OPEC’s decision on whether it will proceed with its planned monthly supply increase in April. Bloomberg reported last week that OPEC is considering delaying the planned supply boost, which could provide further support to oil prices.

Closing statement: WTI remains supported by supply concerns, but geopolitical developments, including US sanctions, Russia-Ukraine peace talks, and potential OPEC decisions, will be key factors influencing its next move.

• DAX Price: The DAX 40 outperformed on Monday amid a mixed day for European stocks, buoyed by Germany’s election results. Christian Democratic Union (CDU) leader Friedrich Merz is set to become the next Chancellor after a decisive victory, providing political clarity.
• German Q4 GDP: Germany’s final Q4 GDP data showed a -0.2% quarterly decline, in line with preliminary estimates, according to Destatis.
• Eurozone Inflation: Investors weighed fresh inflation data, as Eurostat reported that euro area consumer price inflation accelerated to 2.5% YoY in January, up from 2.4% in December. The rise in inflation may impact European Central Bank (ECB) policy expectations.
• ECB’s Stance: Despite ongoing geopolitical uncertainties, DAX may find downside protection from the ECB’s increasingly dovish outlook. Over the weekend, ECB policymaker François Villeroy de Galhau reaffirmed expectations that the central bank will lower its deposit rate to 2% by summer.
• Technical Outlook: The DAX remains within a short-term bullish channel that has been intact since the start of the year. However, the Relative Strength Index (RSI) is at severely overbought levels on higher time frames, suggesting the risk of a pullback.

Closing statement: Political clarity from Germany’s election, a dovish ECB, and ongoing technical strength keep the DAX supported, but overbought conditions and economic data could introduce volatility.