Wednesday, 18 May 2022

Pound falls as UK inflation hits 40 year high

The pound fell against the dollar on Wednesday after data showed British inflation rising to 9%, the highest level in 40 years.

At 0846 GMT, sterling was down 0.9% against the U.S. dollar at $1.23820.

The drop reverses most of the gains made on Tuesday when the pound touched its highest level since May 5.

Strong labour market data had boosted expectations that the Bank of England would have to further increase interest rates, but the latest inflation numbers are fuelling fears that the threat of recession may temper how far the central bank can go.

"Yesterday it looked like with wage growth rising and unemployment so low it meant that the bank had more room for manoeuvre," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV).

"Now the eye wateringly high costs for consumers is going to lead to dropping consumer spending power which will have a deep impact on output in the UK economy."

Consumer price inflation hit 9% in April, making Britain's inflation rate the highest of Europe's five biggest economies and almost certainly the Group of Seven countries, with Canada and Japan yet to report figures for April. Neither are likely to match Britain's price growth.

“Of course the bank doesn’t want to be so aggressive that it pushes the UK into a deep downturn, but it knows it needs to pull some levers to try to keep a lid on inflation," said Streeter.

The fact that the U.S. Federal Reserve is expected to act more aggressively on its interest rate hikes is also making the dollar more attractive, Streeter said, further adding to the pound's weakness as traders flee riskier assets.

Against the euro, the pound was up 0.7% at 84.08 pence.

British foreign secretary Liz Truss said on Tuesday she intended to introduce legislation in the coming weeks to make changes to the Northern Ireland protocol, which was part of the Brexit divorce deal.

According to a note from ING strategists, Brexit-related risks around changes to Northern Ireland protocol and the potential for a trade war with the EU is a major downside risk for the pound, which they expect to trade at mostly below $1.23820 versus the dollar during the summer.


Tuesday, 17 May 2022

Gold Price Forecast: XAUUSD to fall further towards $1,691/77 – Credit Suisse

Gold tested $1,800 on Monday but managed to reverse its direction. Economists at Credit Suisse expect the yellow metal to suffer additional losses towards the $1,691/77 zone.

Gold/Silver ratio holding a major base to reinforce the likelihood gold still outperforms

“Gold has broken support from its uptrend from last August and 200-day average at $1,838/28 to warn of a retest of pivotal long-term support from the lower end of the two-year range at $1,691/77. Only below here though would see an important top established here also.”

“The Gold/Silver ratio has completed a major base to suggest that gold should continue to outperform silver and even though gold can weaken on an outright basis, it is still more likely weakness within the broader range for now.”


EUR/USD extends ECB-inspired rally to mid-1.0500s

 EUR/USD has extended its daily rally and reached its highest level in nearly a week above 1.0550. Hawkish comments from ECB policymaker Klaas Knot and the broad-based dollar weakness in the risk-positive environment continue to fuel the pair's upside as focus shifts to US data.

 The Relative Strength Index (RSI) indicator on the four-hour chart stays below 70 while holding above 50, suggesting that the pair has more room on the upside before turning technically overbought. 

On the upside, 1.0480 (50-period SMA, Fibonacci 50% retracement of the latest decline) aligns as initial resistance. In case this level turns into support, 1.0500 (psychological level, Fibonacci 61.8% retracement) and 1.0530 (100-period SMA) could be seen as the next recovery targets.

Supports are located at 1.0450 (Fibonacci 38.2% retracement), 1.0420 (Fibonacci 23.6% retracement) and 1.0400 (psychological level).

Monday, 16 May 2022

Russia's Putin: Will react to expansion of military infrastructure in Finland, Sweden

 Russian President Vladimir Putin said on Monday that the expansion of NATO is a problem and it is in the interests of the USA, reported Reuters. Russia has no problems with Finland and Sweden, he continued, but Russia will react to the expansion of military infrastructure in these countries. Putin added that Russia needs to pay additional attention to NATO plans to increase its global influence. 

Finland and Sweden both announced their commitment to applying for NATO membership over the weekend and most NATO nations have come out in support. 

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