The British pound stabilized at $1.2208 in early European trading following a slowdown in UK inflation. This prompted speculation among traders that the Bank of England might reduce interest rates during its February Monetary Policy Committee meeting.
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The Office for National Statistics (ONS) reported a 2.5% year-on-year increase in prices for December, down from 2.6% the previous month. While prices continue to rise, the pace has decelerated.
Financial markets now predict a 74% likelihood of an interest rate cut at the Bank of England’s February meeting, up from 62% prior to the inflation data release. This shift bolstered UK government bonds, known as gilts. The benchmark 10-year yield fell six basis points to 4.82%, and the more rate-sensitive two-year yield decreased by nearly eight basis points, surpassing German and US counterparts, according to Reuters data.
Kenneth Broux, head of corporate research FX and rates at Société Générale, noted that the prior decline in sterling was driven by a surge in yields, and the current reversal provides some relief. The pound also held steady against the euro at €1.1844.
Gold Prices Respond to US Inflation Anticipation
Gold prices saw a modest increase as traders anticipated crucial US consumer inflation data. A slight weakening of the dollar further supported bullion.
Spot gold rose 0.6% to $2,686.83 per ounce, while gold futures climbed 0.8% to $2,704.10 per ounce. The softer-than-expected producer inflation data from the previous session fueled hopes of easing inflation, contributing to the dollar’s decline and subsequently bolstering gold prices.
However, gold remained range-bound due to subdued safe-haven demand and the prospect of slower interest rate cuts by the Federal Reserve. Investors remain cautious, weighing inflation concerns against expectations of sustained high interest rates. Market attention is now fixed on the upcoming consumer price index (CPI) inflation data, expected to reveal a slight inflation uptick in December. This could reinforce concerns about persistently high US interest rates, potentially keeping gold prices within a narrow range until further clarity emerges regarding the Fed’s monetary policy trajectory.
Oil Prices Steady Amidst US Inflation Report Expectations
Oil prices held relatively steady as traders awaited the US inflation report. Prices remained near a four-month high. Brent crude futures were unchanged at $79.95 per barrel, while US West Texas Intermediate (WTI) crude held at $77.50.
Oil prices rallied earlier in the week, reaching a four-month high on Monday, following new sanctions imposed by the Biden administration targeting Russia’s oil and gas revenues. These sanctions raised concerns about tightening supply and potentially increased demand from alternative sources. Analysts cautioned that the sanctions could drive Brent crude prices up to $90 per barrel.
Yeap Jun Rong, market strategist at IG, highlighted the impact of Russian oil sanctions and stronger US economic data on recent market movements. The crucial question, according to Yeap, is the extent of Russian supply loss in the global market and the efficacy of alternative measures in compensating for the shortfall. He suggested that oil might relinquish some of its recent gains in the near term. The FTSE 100 exhibited an upward trend, trading at 8,258.67 points.
