Palladium prices fell on Wednesday as the dollar index rose against most major rivals and amid concerns about Chinese demand.

Chinese services expanded by the slowest pace in eight months during August, which shows the economy overall is decelerating markedly. 

Metals were recently boosted by dollar's decline in recent weeks, however as US data proves strong especially export data, the dollar resumes its gains, in turn heaping pressure on metal prices. 

Otherwise, the dollar index rose 0.2% as of 16:24 GMT to 105.01, with a session-high at 105.02, and a low at 104.5.

On trading, palladium futures, used extensively in the automotive industry to reduce exhaust fumes, fell 1.5% as of 16:16 GMT to $1,195 an ounce. 

In a step that surpassed expectations, both Saudi Arabia and Russia decided to extend their voluntary oil production cuts for three more months until the end of the year, while analysts expected only a single month extension.

We here at economies.com will analyse the decision and the factors behind it, and the impact on global oil prices.

Saudi Cuts

Saudi Arabia officially announced a three-month extension to its voluntary production cuts amounting to one million bpd until the end of December.

The cuts came in addition to the official cuts enacted by OPEC+ which were announced last April.

Russian Cuts

In addition, Russian prime minister Alexander Novak also announced plans to support global prices in cooperation with Saudi Arabia and cut oil exports by 300 thousand bpd until the end of the year.

Novak said Russia will review the decision monthly to either increase or decrease the amount of exports according to markets. 

Global Oil Prices

In response, global oil prices extended their strong gains on Tuesday and scaled a ten-month high, with Brent rising above $90 a barrel for the first time this year. 

Saudi and Russian Main Goal

Both countries naturally aim to stabilise and boost global oil prices with such strategies, which already buoyed prices by nearly 27% so far since June.

Such strategy also aims at sapping and reducing the global inventories as prices continue to increase. 

Also the decisions are trying to anticipate a potential decline in demand in the fourth quarter of the year as signs of global recession increase. 

The increase in oil prices is expected to pose fresh inflationary challenges to global central banks, chief of which the Federal Reserve.

US Oil Companies 

As global oil prices spike, US shake oil companies are welcoming such developments and rushing to reactivate their dormant drills and recoup recent losses.

And indeed, US oil production rose 600 thousand bpd in August to a total of 12.8 million bpd, the highest since March 2020.

Price Outlook

Now many analysts actually expect oil prices to head firmly towards $100 a barrel by the end of the year. 

Gold prices fell in European trade on Wednesday, sharpening losses for the fifth straight session and plumbing a one-week trough as US treasury yields power up.

The spike in global oil prices also renewed concerns about US Federal Reserve's fight against inflation, and bolstered the case that US interest rates will remain high for most of 2024. 

In addition, a spate of recent remarks by Fed officials maintained the possibility of another US interest rate hike this year.

Gold Prices Today

Gold prices fell 0.2% to $1,922 an ounce, the lowest in a week, after losing 0.6% on Tuesday, the fourth daily loss in a row away from four-week highs at $1,953 an ounce on profit-taking and as the dollar powers up.

US Yields 

US 10-year treasury yields rose 1.75% today on track for the third profit in a row, marking two-week highs at 4.274%, and pressuring non-yielding asset prices.

Such progress in the US bonds market comes as global oil prices spiked to ten-month highs after new voluntary production cuts by Saudi Arabia and Russia.

Thus oil prices and inflation are expected to increase or remain high in the US and other major economies.

The Federal Reserve has always reiterated its readiness to increase interest rates once more if inflation remains far from the 2% targets.

Fed Remarks

Fed official Christopher Waller said the final upcoming batch of US data will give the Fed important clues on whether it needs to raise interest rates once more.

US Rates

Pricing for a 0.25% Fed interest rate hike at the September meeting currently stands at just 7%.

However, pricing for a 0.25% Fed interest rate hike at the November meeting rose from 38% to 46%.

The SPDR

Gold holdings at the SPDR Gold Trust fell 1.16 tonnes yesterday to a total of 889.81 tonnes, away from August 15 highs at 890.97 tonnes. 

Sterling rose in European trade on Wednesday against a basket of major rivals amid attempts to recoup from recent three-month lows against dollar ahead of a Parliamentary hearing session for Bank of England officials. 

Remarks said in such a hearing could offer us more clues about the future path of interest rates in the UK, especially at the September 21 meeting. 

GBP/USD rose 0.2% to 1.2588, with a session-low at 1.2550, after losing 0.5% on Tuesday, marking three-month lows at 1.2528, amid active demand on the greenback back then.

Hearing Session

Later today, the UK Parliament will hold a hearing session on the Bank of England's monetary policies, which could provide clues on the likely path ahead for UK monetary policies.

BOE Deputy Governor Ben Broadbent recently said that UK interest rates will likely remain high for an extended period of time as inflation is expected to remain stubborn for some time. 

Bank of England officially stated this month that borrowing costs will likely remain high for some time after raising UK interest rates for the 14th meeting in a row.

UK Rates

Investors now expected another UK interest rate hike at the BOE September meeting to 5.5%. 

After such a hike, the current interest rate gap between the UK and the US will vanish, as the Fed is expected to hold interest rates unchanged. 

As the gap vanishes, the pound is expected to gain ground against the greenback, especially with even more UK interest rate hikes likely to come.