Pound weakens as dollar strengthens amid political uncertainty

Pound (GBPUSD=X, GBPEUR=X)

The pound dipped 0.3% against the dollar (GBPUSD=X) on Tuesday morning, to trade at $1.344 at the time of writing, with sterling continuing to face pressure from a stronger greenback.

The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six currencies, was up 0.3% at 98.37 at the time of writing.

CCY - Delayed Quote•USD

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1.3434

-0.0047

(-0.35%)

As of 10:41:11 AM GMT+1. Market Open. Advanced Chart

Chris Turner, global head of markets and regional head of research for UK & CEE at ING (ING), said that the dollar index "should remain range-bound, but with a slight upside bias given developments in Japan and France". Both the Japanese yen and the euro are included in the US dollar index basket of currencies.

The yen weakened against the dollar (JPYUSD=X) on Tuesday, following Sanae Takaichi's victory in the Liberal Democratic Party leadership contest, with her expected to become Japan's next prime minister.

In a note on Monday, Capital Markets chief markets economist John Higgins, said: "Takaichi is widely seen as an equity market-friendly champion of the policies of the late Japanese prime minister Shinzo Abe, the three ‘arrows’ of which were loose monetary policy, fiscal stimulus and structural reform."

He said that this helped explained the drop in the yen against the dollar and the surge in Japanese stocks following her victory.

Read more: Stocks mixed as Donald Trump announces new 25% large truck tariff

"After all, Japan’s currency plunged and its stock market outperformed its US counterpart significantly in local-currency (LC) terms in the early years of ‘Abenomics’," Higgins said.

Meanwhile, the euro also weakened against the dollar (EURUSD=X), amid political turmoil in France, following prime minister Sebastien Lecornu resigned after less than a month in the job.

Jim Reid, head of macro and thematic research at Deutsche Bank (DBK.DE), said: "[President Emmanuel] Macron has asked Lecornu to continue consultations with party leaders to 'define a platform for stability' and report back by tomorrow evening, but the political arithmetic remains unforgiving even if there's an outside chance he salvages something."

The pound was steady against the euro (GBPEUR=X) on Tuesday morning, trading at €1.1503 at the time of writing.

CCY - Delayed Quote•USD

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1.1514

+0.0008

+(0.07%)

As of 10:41:11 AM GMT+1. Market Open. Advanced Chart

Oil (BZ=F, CL=F)

Oil prices dipped on Tuesday morning, after surging in the previous session, following a smaller-than-feared output hike by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).

Brent crude (BZ=F) futures edged 0.1% lower to $65.39 per barrel at the time of writing, while West Texas Intermediate futures (CL=F) fell by the same margin to $61.61 a barrel.

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On Sunday, OPEC+ said it would boost crude oil production by 137,000 barrels per day from November, which was a more modest increase than feared by investors.

Read more: Shell expects 'significantly higher' gas trading in the third quarter

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said that the OPEC+ production hike was "well below what many had feared, keeping supply tight".

"Adding to the bullish tone, reports of damage at a major Russian refinery over the weekend have raised short-term supply concerns, even as broader worries about weak demand continue to temper enthusiasm," he said.

NY Mercantile - Delayed Quote•USD

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65.09

-0.38

(-0.58%)

As of 5:31:58 AM EDT. Market Open. Advanced Chart

Gold (GC=F)

After notching fresh highs in the previous session, gold prices steadied on Tuesday morning, with a stronger dollar weighing on the precious metal.

Gold is typically traded in dollars, so a stronger greenback makes the precious metal more expensive for overseas buyers.

Gold futures (GC=F) traded at $3,974.20 per ounce, at the time of writing, while spot gold edged 0.2% lower to $3,953.11 an ounce.

ING's (ING) head of commodities strategy Warren Patterson and commodities strategist Ewa Manthey, said: "Gold remains supported with spot prices approaching $4,000/oz yesterday following mounting uncertainty about a US shutdown and political turmoil in France.

"In the second week of the ongoing US government shutdown, access to key economic data has been cut off, leaving investors and the Federal Reserve in the dark about changing conditions."

Meanwhile, US president Donald Trump announced that new tariffs on trucks imported to the US will begin at the start of next month.

From 1 November, all medium- and heavy-duty trucks imported into the US will face a 25% tariff rate, as the US president escalates his effort to protect US companies from foreign competition.

More broadly, the FTSE 100 (^FTSE) was little changed on Tuesday morning, trading at 9,483 points. For more details on market movements check our live coverage here.

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3,982.90

+6.60

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As of 5:31:56 AM EDT. Market Open. Advanced Chart

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