By Daniela Sabin Hathorn, senior market analyst at Capital.com
- UK inflation offers a small respite
- Precious metals suffer a reality check
UK inflation failed to rise in September as some analysts had predicted, likely to the delight of the Bank of England. UK CPI came in unchanged at 3.8% y/y with core inflation actually dipping to 3.5% y/y from 3.6% when analysts had been anticipating a rise to 3.7%. On the monthly readings, both headline and core inflation saw no further upside in price pressures, with both readings coming in at 0% and below expectations. The softer data has eased some of the concerns about stagflation, allowing some repricing of rate cut odds from the BoE over the coming months, however the risks to the UK economy are not yet off the table. The higher odds of a rate cut have offered some downside pressure on the pound as it hinders its rate differential with other currencies, with EUR/GBP and GBP/JPY both seeing some moves this morning. Meanwhile, GBP/USD is facing its third day of selloff this week driven mostly by a bounce in the dollar since last Friday.
GBP/USD daily chart
Past performance is not a reliable indicator of future results.
Meanwhile, precious metals stole the show on Tuesday as gold suffered its worst day since 2013. The move in both gold and silver was pretty dramatic however the outcome is not all that surprising. Prices had been running very hot, detaching to some extent from fundamentals which remain strong regardless. Some profit-taking after a significant rally in the weeks prior blended with some news about positive developments in the trade front and that was enough for investors to offload some hefty positions. However, the move cannot be considered a crash, or even a correction, given how high prices were trading. Both metals continue to run a hefty profit this year, even after yesterday’s pullbacks. The debasement trade and expectations of further rate cuts from the Federal Reserve continue to offer ample support, so the moves were likely just a return to reality after a period of overexcitement in markets.
