FTSE 100 LIVE: London rises and Europe muted as EU and India announce 'mother of all trade deals'

LONDON – European markets showed a muted response on Wednesday to the announcement of a landmark trade agreement between the European Union and India, as investor focus remained squarely on a plummeting US dollar and an imminent interest rate decision from the US Federal Reserve. While London's FTSE 100 edged higher, continental bourses faltered, underscoring a market grappling with major cross-currents from geopolitical shifts, currency volatility, and central bank policy.

The day's headline event was the conclusion of a historic free trade pact between the 27-member EU and India. Hailed as the "mother of all deals" by European Commission President Ursula von der Leyen, the agreement creates a liberalised trade zone covering nearly 25% of global GDP and a combined population of two billion people. However, the long-term economic implications of the deal were overshadowed by more immediate market drivers, primarily the dramatic weakness in the greenback.

The EU-India "Mother of All Deals"

After nearly two decades of intermittent negotiations, Brussels and Delhi have finalised a comprehensive agreement aimed at eliminating tariffs and deepening economic and security ties. The deal is seen as a strategic move by both powers to bolster their global standing amid ongoing tensions with the United States.

• Economic Scope: The pact unites the EU bloc and the world's most populous nation, creating a formidable economic partnership. It promises to slash tariffs across a wide array of goods and services, fostering greater market access for businesses on both sides.

• Strategic Partnership: Beyond trade, the agreement includes a joint security partnership, signalling an intent to align on broader geopolitical issues and enhance cooperation in defence and technology.

• Leadership Acclaim: Speaking from Delhi, President von der Leyen celebrated the achievement, stating, "We did it, we delivered the mother of all deals." Her counterpart, Indian Prime Minister Narendra Modi, lauded the pact as "historic" for both regions.

Market Reaction: A Tale of Two Continents

Despite the magnitude of the trade announcement, European equity markets delivered a lacklustre performance, suggesting investors are weighing the long-term benefits against more immediate macroeconomic concerns. US futures, however, pointed to a more optimistic start on Wall Street.

• FTSE 100 (^FTSE): London’s benchmark index managed a modest 0.1% gain in early trading, showing some resilience.

• German DAX (^GDAXI): Germany's primary index was treading water, reflecting investor caution.

• French CAC 40 (^FCHI): The Parisian index slipped into negative territory, down 0.7%.

• Pan-European STOXX 600 (^STOXX): The broad regional benchmark remained flat, summarising the hesitant mood across the continent.

• Wall Street Outlook: In contrast, US futures were firmly in the green. S&P 500 futures (ES=F), Dow futures (YM=F), and Nasdaq futures (NQ=F) all pointed to a positive open, driven by dynamics separate from the European session.

Dollar Tumbles as Gold Hits Stratospheric Highs

The most significant action was seen in currency and commodity markets, where the US dollar continued its sharp descent. The dollar index sank to a fresh four-year low, catalysing a massive rally in gold and providing a strong tailwind for the euro.

The sell-off in the greenback accelerated following comments from US President Donald Trump, who, when asked about the dollar's decline, remarked that its value was "great." Traders and analysts interpreted this as a tacit endorsement of a weaker currency.

• Analyst Insight: "When the person who could jawbone to defend the currency sounds unconcerned, the perceived backstop under the dollar gets thinner," said Anthony Doyle, chief investment strategist at Pinnacle Investment Management. Kelvin Wong, a senior market analyst at OANDA, attributed the dollar's fall to a "broad-based consensus within the White House to have a weaker greenback."

• Dollar Index (DX-Y.NYB): The index, which measures the dollar against a basket of six major currencies, fell 0.2% to 96.08, a four-month low, extending its multi-year downtrend.

• Euro and Pound: The euro (EURUSD=X) capitalized on the dollar's weakness, breaking through the key psychological level of $1.20. The British pound (GBPUSD=X) was an outlier, falling 0.3% against the dollar to 1.3804 amid its own specific pressures.

Gold Surges Past $5,200

The dollar's plummet sent shockwaves through the gold market, pushing the precious metal to unprecedented highs. Gold is priced in dollars, so a weaker greenback makes it cheaper for holders of other currencies, boosting demand.

• Record Prices: Gold futures (GC=F) soared 4% to $5,290.40 a troy ounce, having earlier touched an all-time high of $5,285.35. Spot gold prices climbed 4.1% to $5,295.61. The metal's break above the $5,200 level marks a historic first.

All Eyes on the Federal Reserve

With markets in flux, all attention now turns to the US Federal Reserve, which is set to announce its latest monetary policy decision at 7 p.m. UK time. While no change in policy is expected, the event is poised to inject further volatility into trading, particularly for the dollar.

• Interest Rate Expectations: Policymakers are widely anticipated to leave the federal funds rate unchanged in its current range of 3.50% to 3.75%. The focus will be on Chairman Jerome Powell's subsequent press conference for clues on future policy.

• A Chairman Under Pressure: The meeting takes place against a backdrop of immense political and legal pressure on Chairman Powell. He has faced repeated public attacks from President Trump for not lowering rates faster and is currently the subject of a criminal investigation over renovations to the central bank’s buildings.

• Press Conference Focus: Market participants will be listening intently for Powell's commentary on a number of non-economic issues, including a recent Department of Justice subpoena, the Lisa Cook case before the Supreme Court, and speculation over his successor. His term as chair concludes in May, and the next rate reduction is not expected until after his departure.

• Market Implications: Economists at Deutsche Bank expect Powell to reiterate previous statements regarding the subpoena. Any deviation or new information could have a significant market impact, as investors assess the stability and independence of the central bank's leadership.

The convergence of a landmark trade deal, a currency in freefall, and a high-stakes central bank meeting has created a complex and tense environment for global investors. The Fed's decision and Chairman Powell's guidance will be the critical next pieces of the puzzle, likely setting the market's tone for the remainder of the week.