Euro rose in European trade on Monday against the pound, extending gains for the fourth straight session and scaling a four-month high as the UK-European interest rate gap diminished following recent meetings by Bank of England and the ECB.

Analysts now expect BOE to cut interest rates earlier than the European Central Bank in 2024 to boost the economy. 

EUR/USD rose 0.15% to 0.8702, the highest since May, with a session-low at 0.8680, after rising 0.3% on Friday, the third profit in a row as Bank of England paused interest rate hikes. 

EUR/GBP rose 1% last week, the third weekly profit in a row, and the largest since June.

Such strong profits came following policy meetings by the ECB and BOE, with the ECB raising European rates by 25 basis points while the BOE held British rates unchanged. 

Interest Rate Gap 

Following the meetings, the rate gap between the euro zone and Britain stands at 75 basis points, the lowest since March 2022.

Such a gap is expected to continue unchanged this year as both central banks likely have reached neutral levels.

As for next year, the gap might shrink in favor of the ECB, as Bank of England is expected to cut interest rates early in 2024. 

The UK economy is heading for recession faster than Europe, which necessitates a faster response by policymakers. 

Gold prices fell in European trade on Monday, resuming losses and moving in a negative zone under pressure from the stronger dollar against major rivals.

The decline coincides with the weaker demand on gold futures after the SPDR Gold-backed trust fund, the largest in the world, said its gold holdings tumbled to January 2020 lows on Friday.

Gold Prices Today

Gold prices fell over 0.2% to $1,920 an ounce, with a session-high at $1,927, after rising 0.3% on Friday, the first profit in four days on hopes that major global central banks have reached neutral interest rates. 

The Dollar

The dollar index rose 0.2% on Monday, maintaining gains for the second session and almost hitting six-month high at 105.78 against a basket of major rivals. 

Investors continue to purchase the greenback as the Fed paused policy tightening last week while US treasury yields surged. 

Several Fed officials hinted last Friday at several more interest rate hikes, and said the battle with inflation isn't over yet.

US Rates

Current pricing for a 0.25% interest rate hike in November stands at 25%, which is still rather low. 

However, pricing for a 0.25% Fed interest rate hike stands at a higher 41%. 

The SPDR

Gold holdings at the SPDR Gold Trust fund fell 1.44 tonnes on Friday to a total of 877.39 tonnes, the lowest since January 2020. 

Euro rose mildly in European trade against a basket of major rivals, trying to recoup from six-month lows amid active purchases from low levels.

Now investors await European Central Bank President Christine Lagarde's testimony ahead of Parliament later today, expected to offer clues about future interest rates in the euro zone. 

EUR/USD

EUR/USD rose 0.1% to 1.0655, with a session-low at 1.0640, after losing 0.1% on Friday, the fourth loss in a row, away from a six-month low at 1.0615.

Euro lost 0.5% last week against dollar, the tenth weekly loss in a row, and the longest such streak of weekly losses in euro's history amid concerns about the widening US-Europe policy gap.

Interest Rate Gap

US-Europe interest rate gap has become 100 basis points, the lowest since May 2022, and is expected to rise once more to 125 basis points in November.

That's because the ECB is expected to maintain interest rates unchanged, after raising them at the September meeting and reaching a highly restrictive level of rates. 

However, the Federal Reserve is still expected to raise interest  rates by 25 basis points at the November meeting. 

Lagarde

European Central Bank President Christine Lagarde will speak ahead of the European Parliament in Brussels later today, and is expected to provide important clues for the path ahead in policies. 

Saudi energy minister Abdulaziz bin Salman Al Saud said this week about the recent Saudi and Russian decision to cut production "It's not about prices, but rather about taking the right decisions based on data".

When Saudi Arabia took the decision to extend the voluntary production cuts, everyone thought it was about the price and the support for the ambitious Saudi budget. 

However, Saudi Arabia doesn't share that view itself, and actually shares many concerns with oil traders about growth struggles in Europe and other economies, which could impact prices and demand. 

Thus Saudi Arabia is worried about weakening global demand as the global economy slows down, which promoted it to intervene and cut production to underpin prices. 

The Saudi oil minister also said he doesn't share the International Energy Agency's view that global oil demand will peak before 2030.. adding he won't believe it until he sees it. 

Indeed, demand and supply forecasts are not very accurate, and an example is the exaggerated growth forecasts for Chinese growth this year which were supposed to boost prices. 

However prices were stubbornly weak despite the record Chinese demand, prompting Saudi Arabia and Russia to directly intervene and boost prices. 

It also doesn't look like there's a particular rush to oil alternatives, as demand remains strong even as EV car sales continue to surge in both Europe and the US. 

All this proves that oil demand is extremely flexible, and no surprise there, thus the Saudi oil minister isn't at all concerned. 

However, he outright criticized the International Energy Agency as a political mouthpiece that started to lose credibility. 

He pointed to unrealistic expectations for the usage of renewable solar and wind energy to generate power, including fuel for cars, instead of oil and gas, while asking investors to put their money according to such shaky basis.

To the complete opposite of this, Aramco CEO has recently criticized the IEA and called for increased investments in oil and gas to avoid another crisis in the medium term, which could force countries to use coal and other cheaper products.