The pound gained ground on both the dollar and the euro during early Wednesday trading, following the publication of UK inflation data that revealed an year-on-year rate of 2.1% during the month of May. This reading surprised to the upside, as the markets’ consensus had been for a 1.8% rise in consumer prices. Investors saw sufficient reason in these numbers to back sterling because an inflation reading above the Bank of England’s 2% target may force bank officials to raise interest rates if it remains at these levels for a prolonged period of time thereby creating a dynamic that would be supportive for the pound.
Oil prices reached new multi-year highs during early Wednesday trading, with Brent touching $74.71, the highest watermark since October 2018. The current prices illustrate a plainly bullish stance amongst investors who clearly are betting on the continuation of this upwards trend, due to rising demand as economies emerge from lockdowns, with many now expecting a return to pre-COVID levels during the second half of the year. Also supporting the price of the barrel is the fact that recent US oil inventories came up shorter than expected.
European markets were toneless on Wednesday amid a “wait and see” trading stance from investors. While many brace for another busy macro day, with Canadian CPI, US Crude Oil Inventories and Building Permits, all eyes will be on the minutes of the last FOMC meeting. The inflation context hasn’t significantly changed over the last few weeks, and investors need further clarity about the future of refinancing rates as well as tapering of the Fed’s massive bond buying program. While these taper talks aren’t expected to start before the end of year, many are already pricing them in and this has led to the current technical consolidation on US stocks. Meanwhile in Europe, FOMC data will of course have an impact on EU benchmarks but this is likely to be short-lived as the ECB didn’t show any sign of any hawkish approach, which keeps the possibility of higher highs alive on the old continent.
Pierre Veyret– Technical analyst, ActivTrades
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Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.