Sterling Hits 14-Month Low Amid Fiscal Credibility Concerns

Sterling fell to $1.2138, a fresh 14-month low, as markets questioned the UK government's fiscal credibility, with Finance Minister Rachel Reeves pledging to uphold fiscal rules during her visit to China. Asian stocks and US futures traded lower, with S&P 500 and Nasdaq futures down 0.5%, while European futures dipped 0.1%-0.3%. Oil prices climbed another 1.5% as new US and UK sanctions targeted 160 Russian tankers, heightening concerns over supply disruptions.

Equities

The FTSE 100 fell 0.9% on Friday, although it marked its third consecutive weekly advance. Sterling’s sharp decline over the week supported the index, alongside gains in oil and gas stocks, which rose 0.5% as crude prices jumped more than 4% to their highest level since October, driven by concerns over Russian supply disruptions.

Insurers including Beazley and Hiscox declined, falling 2.3%, with concerns about potential losses linked to wildfires in Los Angeles weighing on the sector. The midcap FTSE 250 index dropped 1.4%, reaching an eight-month low and recording its largest weekly decline since October 2023, down 2.8%.

In the United States, the S&P 500 fell 1.54% on Friday, wiping out its 2025 gains following a stronger-than-expected December jobs report, which renewed inflation fears. Walgreens Boots Alliance surged 27.55% after delivering a better-than-expected quarterly profit.

Constellation Brands dropped 17.09% after it cut its annual sales and profit forecasts. Nvidia declined around 3%, weighed down by reports of potential new US export restrictions.

The Dow Jones Industrial Average declined 1.63%, while the Nasdaq Composite also dropped 1.63%, with chipmakers among the laggards. Energy stocks were one of the few bright spots, with the sector gaining 0.34%. The Russell 2000 small-cap index fell 2.27%, slipping into correction territory, down 10.4% from its late-November peak.

On the bond market, the yield on the 30-year US Treasury touched 5%, its highest since November 2023, before retreating slightly to 4.966%.

Forex & Commodities

The US dollar surged to a two-year high, reaching 109.98 against a basket of currencies, following a stronger-than-expected December jobs report. The robust data, which showed unexpected growth in nonfarm payrolls and a drop in unemployment to 4.1%, has reduced market expectations of Federal Reserve rate cuts this year. Sterling was among the biggest losers, falling over 0.5% to a 14-month low of $1.2128, pressured by concerns about rising UK borrowing costs and uncertainty over public finances. The euro also declined, hitting its weakest level since November 2022 at $1.0275.

Gold prices edged lower, with spot gold down 0.1% at $2,688.19 per ounce as of 7:30 GMT. The US dollar's strength and diminishing hopes for Fed rate cuts weighed on bullion, while US gold futures dropped to $2,713.10. Investors now look to upcoming US inflation data, which could influence the Fed's policy stance.

Oil prices continued their rally, with Brent crude climbing 1.43% to $80.90 a barrel, its highest level since August, while US West Texas Intermediate rose 1.57% to $77.77. The gains were driven by new US sanctions targeting Russian oil exports, which are expected to disrupt supplies to major buyers like China and India. Analysts estimate the sanctions could impact 25% of Russia’s crude exports, pushing refiners in Asia to seek alternatives and driving up prices and shipping costs. Brent and WTI have now gained over 6% since 8 January, with further supply constraints anticipated.