Market update: dollar weakness drives gold to record highs

Sterling retreats after reaching strongest level since 2021

​Sterling slipped roughly 0.5% on the day, easing back from its strongest level since 2021. The pullback came as the United States (US) dollar staged a modest recovery after a sharp selloff that had pushed it to multi-year lows.

​The British pound's retreat follows a period of significant strength against the greenback. Currency markets remain volatile as traders assess the implications of US policy unpredictability and concerns over Federal Reserve (Fed) independence.

​Despite the intraday decline, sterling remains well supported by multi-year levels. The currency has benefited from broader dollar weakness, with the dollar index sliding to a four-year low after falling more than 9% in 2025.

​Forex trading remains highly active as traders navigate elevated volatility across major currency pairs. The euro briefly broke above $1.20 for the first time since 2021, whilst the yen strengthened on intervention speculation before the dollar's modest rebound.

​FTSE 100 edges higher on mixed trading

​The FTSE 100 closed marginally firmer, with gains in miners and energy stocks offsetting declines in defensive sectors. Health care and consumer staples names came under pressure as investors rotated into more cyclical areas.

​The blue-chip index underperformed more tech-heavy European peers. ASML's surge to a record high on strong orders dragged European technology stocks higher, whilst Louis Vuitton Moet Hennessy (LVMH) slid sharply on weaker sales figures.

​Mining stocks benefited from gold's push towards $5300 an ounce. The precious metal hit fresh record highs above $5260 as the weaker dollar propelled demand for non-dollar assets, supporting commodity trading activity.

​Energy names also contributed to the index's modest advance. Oil prices held steady as traders weighed global demand concerns against supply dynamics, providing support for the sector.

​Stock-specific moves dominate UK market

​Marston's shares tumbled as much as 16% despite delivering a solid festive trading update. Analysts pointed to softer-than-expected trends versus peers and a strong run-up in the share price beforehand as reasons for the selloff.

​The pub operator's decline contrasted with strength elsewhere in the consumer sector. Stock-specific factors dominated trading across UK equities, with company updates driving individual share price movements more than broader market trends.

​Life Science REIT jumped 19% after agreeing to a takeover by British Land at roughly a 21% premium. The deal lifted sentiment across parts of the real estate sector, demonstrating continued appetite for M&A activity.

Mobico​ surged 12% on progress in German rail contract negotiations. PayPoint, Mears and Mears also rose on reassuring trading updates and contract wins, highlighting the importance of company-specific catalysts.

​Dollar hovers near three-year lows

​The US dollar remained under pressure near three-year lows after a heavy selloff. President Trump brushed off concerns about currency weakness, encouraging traders to press bearish US dollar positions.

​The dollar index fell to a four-year low, weighed down by concerns over US policy unpredictability and signals that Washington may tolerate a weaker currency. The greenback has declined more than 9% in 2025 as confidence in the currency erodes.

​Currency volatility stayed elevated across major pairs. The euro's break above $1.20 marked its strongest level since 2021, whilst sterling reached similar multi-year highs before retreating.

​US Treasury yields were little changed ahead of the Federal Reserve (Fed) decision, where no move is expected. Markets remain focused on Fed commentary for signals about the central bank's independence and future policy direction.

​Gold pushes towards $5300 on dollar weakness

​Gold surged to fresh record highs above $5260 an ounce, with prices pushing towards the $5300 level. The precious metal benefited from the weaker dollar and rising demand for non-dollar assets.

​The rally in gold trading reflects investor concerns about currency stability and geopolitical uncertainty. Gold has traditionally served as a hedge during periods of dollar weakness and policy unpredictability.

​The move higher comes as central banks remain in focus. Australian inflation data pushed markets to price a greater than 70% chance of a Reserve Bank of Australia (RBA) rate hike next week.

​US equities closed at record highs ahead of mega-cap earnings releases, shrugging off the turbulence in currency markets. Asian markets traded mixed, with Hong Kong equities rallying strongly despite elevated forex volatility.

​European markets driven by earnings

​ASML surged to a record on strong order numbers, lifting European technology stocks. The Dutch semiconductor equipment maker's performance contrasted sharply with weakness in luxury goods, where LVMH slid on softer sales figures.

​The divergence between sectors highlighted the stock-specific nature of recent trading. Company fundamentals and earnings updates drove individual share price movements more than broader market factors.

​European indices outperformed the FTSE 100, benefiting from greater exposure to technology names. The tech-heavy nature of continental bourses provided support as semiconductor stocks rallied on optimism about order trends.

​UK markets face a busy period ahead with further trading updates expected. Investors remain focused on company-specific news flow rather than macro themes, with share trading activity concentrated in names delivering concrete catalysts.