Market Update by Solidecn.com

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FTSE 100 Rises on Oil Gains, BoE Decision Awaited

Solid ECN - On Monday, the FTSE 100 experienced a modest increase, nearing the 7660 mark, marking its peak in almost three weeks. This growth was primarily driven by a 1.4% gain in Royal Dutch Shell and a 2% jump in BP stock values. The escalation of tensions in the Middle East played a role in bolstering oil prices, contributing to this upward trend.

Meanwhile, market participants anticipate the upcoming Bank of England's monetary policy announcement, expecting the central bank to maintain the interest rate at its current level for the fourth consecutive session.

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Gold Price Surges Past $2,020 Amid Middle East Tensions



Solid ECN - Gold's value climbed to over $2,020 per ounce on Monday, recovering some of its recent losses, driven by increased demand for this secure asset amidst escalating tensions in the Middle East. This surge was primarily attributed to the missile strike by Houthi rebels on a Transfigura-managed oil tanker near Yemen's coast and a drone assault on American troops in northeastern Jordan, resulting in the death of three US soldiers.

The investment community is cautiously awaiting the US Federal Reserve's upcoming monetary policy decision. It's primarily anticipated that the interest rates will remain unchanged. Still, keen attention is on Federal Reserve Chairman Jerome Powell's commentary post-meeting for hints about initiating a potential easing phase. Additionally, the impact of unexpectedly robust US economic figures and the Fed officials' firm stance has lessened the likelihood of a rate reduction in March. Market predictions now suggest a 48% probability of a rate cut in March, a notable drop from the 86% likelihood recorded at December's end, per the FedWatch Tool by CME.

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Crude Oil Hits 2-Month High Amid Red Sea Attack.



On Monday, WTI crude oil futures surged to around $79 per barrel, marking a two-month peak. This uptick was largely driven by heightened concerns over potential supply disruptions following the Houthi group's assault on a Transfigura-managed fuel tanker in the Red Sea.

The incident, involving a missile strike near Yemen's coast last Friday, has led Transfigura to reevaluate the safety of continuing shipments through the Red Sea. Additionally, there's an anticipated decline in Russian refined oil exports due to repairs at several refineries due to recent drone strikes. On the demand front, robust economic figures from the US and new financial measures in China are boosting oil consumption prospects in these significant markets. While OPEC and its allies plan to convene virtually on February 1, it's not anticipated that they will make early decisions regarding their output policies.

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Pound Strengthens Amid Positive PMI Data and BOE Rate Speculations


Soldi ECN – The UK pound surged to $1.28 versus the US dollar and hit a near five-month peak against the euro, bolstered by unexpectedly robust PMI figures. These statistics could influence the Bank of England to adopt a gradual approach to reducing borrowing rates. Recent PMI surveys indicated a significant expansion in Britain's private sector, the most notable in seven months. This expansion was driven mainly by the service sector, which experienced its fastest growth since May.

In addition, recent economic reports showed a smaller-than-anticipated budget shortfall for Britain in December, potentially allowing for tax reductions in the upcoming March budget. However, other data pointed to the steepest drop in UK retail sales since January 2021 and a surprise uptick in inflation. With the Bank of England meeting on February 1st, interest rates are expected to maintain a 15-year peak of 5.25%. Compared to its European and American counterparts, the Bank is projected to delay rate cuts throughout the year.

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EUR/USD Dips to 1.0816, Historic Highs and Euro Inception Insights



Solid ECN – On Friday, January 26, the Euro to US Dollar (EURUSD) trading pair declined, falling by 0.0030 or 0.28%, closing at 1.0816 compared to 1.0846 at the end of the previous session. Looking back, the EUR/USD exchange rate recorded its highest value at 1.87 in July 1973. It's important to note that the euro was officially introduced as a form of currency on January 1, 1999. Despite this, it is possible to generate synthetic historical data that extends further back by calculating a weighted average of the currencies that preceded the euro.

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China Cuts Reserve Ratio, Stabilizes Yuan at 7.17



The value of the offshore yuan has stabilized at approximately 7.17 against the dollar. This follows investor evaluations of the repercussions of China's unexpected decision to reduce the reserve requirement ratio.

The People's Bank of China declared this change on Wednesday, planning to lower the ratio by 50 basis points next month. This strategy aims to revitalize China's faltering economy and is anticipated to inject around 1 trillion yuan of long-term capital. Recent gains in the yuan and predictions of interest rate reductions by other leading central banks this year allowed the PBOC to modify its monetary policy. Additionally, Premier Li Qiang led a cabinet meeting earlier this week, where authorities discussed adopting more vigorous and efficient strategies to bolster market assurance.

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Yen Strengthens Beyond 148 Against Dollar as BOJ's Ueda Hints at Policy Shift




Solid ECN – The value of the Japanese yen surged past 148 against the US dollar, rebounding from its near two-month low. This change follows recent comments from Bank of Japan Governor Kazuo Ueda, which ignited discussions about a potential alJapan'sn in Japan's financial strategy. Ueda noted an increasing possibility of consistently meeting the 2% inflation goal alongside wage increases. He mentioned that the central bank might reassess its extensive stimulus measures if this trend persists.

However, in its first session of the year, the Bank of Japan decided to continue its highly accommodative monetary stance, as was anticipated. The BOJ left its primary short-term interest rate unchanged at -0.1% and maintained the 10-year Japanese government bond yield cap at 1%. In other economic news, Japan witnessed a surge in private sector activities, reaching a four-month peak in January, primarily driven by a strong service sector performance. Additionally, the nation recorded a higher-than-expected increase in exports during December.

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NZ Dollar Stabilizes at $0.61 as Q4 Inflation Aligns with Forecasts.



Solid ECN – The value of the New Zealand dollar remained stable at approximately $0.61, reflecting a tepid market response to the latest inflation data for the country. The inflation figures for the fourth quarter showed a 0.5% increase every quarter, a deceleration from the 1.8% rise witnessed in the previous quarter, aligning with market expectations. The year-over-year inflation rate dipped to 4.7% in the fourth quarter, down from 5.6% in the third quarter, marking the lowest rate since mid-2021.

Market participants are now turning their attention to an upcoming speech by Paul Conway, the Chief Economist at the Reserve Bank of New Zealand, who is anticipated to challenge the current dovish market sentiment. Additionally, the New Zealand currency continues to face challenges due to the robust performance of the US dollar as market speculation around early interest rate reductions by the Federal Reserve this year recedes.