Brent crude futures traded at $75.93/bbl on the first trading day of the year, supported by renewed optimism surrounding Chinese economic growth following President Xi Jinping’s pledge to implement more proactive policies during 2025. By mid-month, Brent crude futures rallied to $82.03/bbl, the highest levels in five months, after the Joe Biden administration introduced the toughest sanctions to-date targeting major Russian oil producers, Gazprom and Surgutneftegas, alongside over 180 tankers. The severity of the sanctions compelled Chinese and Indian crude buyers to seek alternative oil supplies, sparking fears of supply-side disruptions. However, Brent crude futures experienced a downtrend during the latter half of the month following Donald Trump’s inauguration as U.S. president on the 20th of January, as markets faced uncertainty over the impact of Trump’s economic policy agenda. Threats of universal tariffs, as well as higher country-specific tariffs on China, Mexico and Canada, heightened caution over the demand-side effects of higher crude prices. Further weighing down prices, Trump declared a national energy emergency in order to ease permitting for new oil infrastructure for higher production, whilst he also urged Saudi Arabia and OPEC to ramp up production in order to drive prices down. By the end of the month, Brent crude traded at $75.9/bbl as the Trump administration considered whether to exempt crude oil from upcoming tariffs, easing Brent crude futures.
The Pound Sterling (GBP) experienced volatility against the USD throughout January amid market uncertainty and mixed economic data. At the beginning of the month, GBP traded at $1.234 against the USD, beginning its downward trajectory after UK Gilt yields rose to multi-decade highs, with 10-year yields at 4.90% and 30-year yields at 5.40% due to rising concerns about the UK economy. By mid-January, GBP depreciated to fourteen-month lows to $1.212 against the USD as markets became increasingly cautious of the UK fiscal outlook and stagflation risks, particularly after GDP figures revealed that the UK economy expanded by just 0.1% during November, falling short of market forecasts of a 0.2% expansion. However, GBP recouped some losses towards $1.249 subsequent to Trump’s inauguration as U.S. president as the U.S. Dollar Price Index declined from its highest levels in two years due to Trump’s delay in imposing universal trade tariffs. Furthermore, GDP data revealed that the U.S. economy expanded by 2.3% in the fourth quarter of 2024, falling short of the forecasted 2.7% expansion. Stronger support for the GBP was hindered by the U.S. Federal Reserve meeting during the final week of the month, whereby interest rates were held steady. In the UK, investors forecasted an interest rate cut by the Bank of England in the upcoming month as well as a dovish stance on rates for the rest of the year, thus deterring demand for the Sterling. By month-end, GBP traded at $1.239 against the USD as the markets assessed the UK economic outlook, as well as the upcoming U.S. economic policy changes.
Investors priced geopolitical risk into Brent crude futures during January, notably after the Biden administration imposed further sanctions on the Russian oil industry in efforts to reduce revenues from oil sales, and in turn, reduce its military capabilities in the Russian-Ukraine war. In the Middle East, concerns of a wider regional war were alleviated following the ceasefire agreement between Israel and Gaza which took effect on the 19th of January, though caution over whether the deal will last, remains. Further into the month, Trump’s inauguration as U.S. president sparked concerns over a potential trade war with China, due to his economic policy agenda which plans to target specific Asian industries such as computer chips and pharmaceuticals.